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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-26470
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
A CALIFORNIA LIMITED PARTNERSHIP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 33-0365417
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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245 FISCHER AVENUE, SUITE D-1, COSTA MESA, CALIFORNIA 92626
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 751-7400
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
UNITS OF LIMITED PARTNERSHIP
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting Units (all voting) held by
non-affiliates of Registrant, computed by reference to the price at which such
units were sold, was $30,000,000 as of March 1, 1996, a date within sixty (60)
days of the filing of this Form 10-K. On that date there were 30,000 Units
outstanding.
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TABLE OF CONTENTS
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP
PART I
ITEM 1. BUSINESS
Formation and General Development.
Industry Segments.
Narrative Description.
ITEM 2. PROPERTIES
INTRODUCTION
RESIDENTIAL RETIREMENT FACILITIES AND SITE
- BRADFORD SQUARE, CALIFORNIA
- CHANDLER VILLAS, ARIZONA
- VILLA LOS POSAS, CALIFORNIA (site)
SENIOR APARTMENTS
- GENERAL
- PACIFIC VILLAS
- CEDAR VILLAS
- VILLA AZUSA
PROMISSORY NOTES RESULTING FROM THE SALE OF
HERITAGE POINTE CLAREMONT PARTNERS, L.P. ("HPCP")
- HERITAGE POINT CLAREMONT
- ACQUISITION
- SALE OF THE PROJECT, RECEIPT OF NOTES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
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PART I
ITEM 1. BUSINESS
FORMATION AND GENERAL DEVELOPMENT.
The Registrant is a California limited partnership formed in June of
1989 to develop, finance, acquire and operate senior citizen housing. The
Registrant operates two assisted living facilities, three senior apartments,
and currently owns one site to be developed into an assisted living facility.
The general partners are: ARV Assisted Living, Inc. ("ARVAL") (formerly ARV
Housing Group, Inc.), which serves as Managing General Partner, Gary L.
Davidson, John A. Booty, John S. Jason, Tony Rota, and David P. Collins
(collectively known as "General Partners"). The General Partners make all
decisions concerning property acquisitions and will make all decisions
concerning dispositions of the facilities, subject to the limited partner's
rights to approve or disapprove of the sale of substantially all of the
Registrant's assets. The Registrant has not made any investment which the
General Partners believe puts the Registrant's capital at unusual risk.
INDUSTRY SEGMENTS.
The Registrant considers its business to represent two industry
segments, the development, financing and operation of both assisted living
facilities and senior apartment complexes.
NARRATIVE DESCRIPTION.
The Registrant's business is the ownership and operation of assisted
living facilities and senior apartment complexes. To understand the business
conducted and intended to be conducted by the Registrant, it is first necessary
to understand assisted living and senior apartment industries, and to
understand the market for potential residents.
Assisted living represents a combination of housing,
personalized support services, and health care designed to respond to the
individual needs of the senior elderly who need help in activities of daily
living, but do not need the medical care provided in a skilled nursing
facility. The assisted living market can be viewed as falling near the middle
of the elder care continuum, between home-based care at one end and long-term
skilled nursing facilities and acute care hospitals at the other.
The Registrant's senior apartment communities were developed
as affordable senior apartments. These facilities offer affordable housing
opportunities to qualified independent lifestyle seniors.
With the U.S. population continuing to age, many Americans are living
longer and relatively healthier lives. As a result, there is a growing need
for more comprehensive healthcare than that typically available at home or on
an out-patient basis. Demand is increasing for services less intensive than
that provided by acute care hospitals and skilled nursing facilities. Assisted
living combines housing and personalized support services with extra
supervision for those who require additional assistance with normal activities
of daily living, while senior housing provides affordable apartment living to
seniors who carry on independent lifestyles.
The Registrant believes its assisted living and senior
apartment businesses benefit from significant trends affecting the long-term
care industry. The first is an increase in the demand for elder care resulting
from the continued aging of the U.S. population. While increasing numbers of
Americans are living longer and healthier lives, many gradually require
increasing assistance with activities of daily living, and are not able to
continue to age in place at home. The
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second is the effort to contain health care costs by the government, private
insurers and managed care organizations by limiting lengths of stay, services,
and reimbursement amounts to persons in acute care hospitals and skilled
nursing facilities. Assisted living offers a cost effective long-term
alternative while preserving a more independent lifestyle for those senior
elderly who do not require the broader array of medical services that acute
care hospitals and skilled nursing facilities are required to provide.
The primary consumers of long-term health care services are
persons over the age of 65. This group represents one of the fastest growing
segments of the population. According to the U.S. Bureau of the Census data,
the number of people in the U.S. age 65 and older increased by more than 27%
from 1981 to 1994. The segment of the population over 85 years of age, which
compromises the largest percentage of residents at long-term care facilities,
is projected to increase by more than 40% between the years 1990 to 2000.
Other trends benefiting the Registrant include the increased
financial net worth of the elderly population, the increasing number of women
who work outside the home and are therefore unable to care for their elderly
relatives and the increase in the population of individuals living alone. As
the ratio of senior elderly in need of assistance has increased, so too has the
number of senior elderly able to afford assisted living. Historically, the
non-institutionalized senior elderly were taken care of by their children,
however, the increased number of women in the labor force has reduced the
supply of in-home care givers. Since 1960, the population of individuals
living alone has increased significantly as a percentage of the total elderly
population. This increase has been the result of an aging population in which
women outlive men by an average of 6.8 years, rising divorce rates, and an
increase in the number of unmarried individuals.
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The majority of states in the U.S. have enacted Certificates
of Need or similar legislation, which generally limits the construction of
skilled nursing facilities and the addition of beds or services in existing
skilled nursing facilities. High construction costs, limitations on government
reimbursement for the full cost of construction, and start-up expenses also act
to constrain growth in the supply of such facilities. Such legislation
benefits the assisted living industry by limiting the supply of skilled nursing
beds for the senior elderly. Cost factors are placing pressure on skilled
nursing facilities to shift their focus toward higher acuity care which enables
them to charge higher fees, thus creating a shortage of lower acuity care
availability, and thereby increasing the pool of potential assisted living
residents.
While Certificates of Need generally are not required for
assisted living facilities, except in a few states, most states do require
assisted living providers to license their facilities and comply with various
regulations regarding building requirements and operating procedures and
regulations. States typically impose additional requirements on assisted
living facilities over and above the standard congregate care requirements.
Further, the limited pool of experienced assisted living staff and management,
as well as the costs and start-up expenses to construct an assisted living
facility, provide an additional barrier of entry to the assisted living
business.
In response to rapidly rising health care costs, both
government and private pay sources have adopted cost containment measures that
have encouraged reduced length of stay in hospitals and skilled nursing
facilities. The federal government has acted to curtail increases in health
care costs under Medicare by limiting acute care hospital reimbursement for
specific services to preestablished fixed amounts. Private insurers have also
begun to limit reimbursement for medical services in general to predetermined
"reasonable" charges.
These cost containment measures have produced a "push-down"
effect. As the number of patients being "pushed down" from acute care
hospitals to skilled nursing facilities increases, the demand for residential
options such as assisted living facilities to serve patients who historically
have been served by skilled nursing facilities will also increase. In
addition, skilled nursing facility operators are continuing to focus on
improving occupancy and expanding services (and fees) to subacute patients
requiring very high levels of nursing care. As the level of skilled nursing
facility patients increases, the supply of nursing facility space will be
filled by patients with higher acuity needs paying higher fees, which again
will provide opportunities for assisted living facilities to increase their
occupancy and services to residents requiring lesser levels of care than
generally can be expected for patients in skilled nursing facilities.
The Registrant provides services and care which are designed
to meet the individual needs of its residents. The services provided are
designed to enhance both the physical and mental well-being of the senior
elderly in each of the Registrant's facilities by promoting their independence
and dignity in a homelike setting. The assisted living program at the
Registrant's facilities include:
Personalized Care Plan - A primary element of the Registrant's
strategy is the concept of "personalized" care to meet each resident's specific
needs. This concept of customizing services to meet the needs of the residents
begins with the resident admissions process, where the facility's management
staff, the resident, the resident's family, and the resident's physician,
discuss the resident's needs and develop a plan for the resident's care. If
recommended by the resident's physician, additional health care or medical
services may be provided at the facility by a third party home health care
agency or other medical provider.
Basic Service and Care Package - The basic service and care
package at the Registrant's assisted living facilities generally includes the
following: meals in a communal, "home-like" setting, housekeeping, linen and
laundry service, social and recreational programs,
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security, utilities, and transportation. Other care services can be provided
under the basic package based upon the individual's personalized health care
plan.
Additional Services - The Registrant has designed additional
assisted living services in a three-tier program available to residents on a
personalized basis.
Level One: Assistance to residents in the self-administration of medication.
Where necessary, the assisted living staff will consult with the family, the
physician or the insurance company of a resident to designate a home health
care agency to administer the appropriate medication.
Level Two: In addition to the services provided under Level 1, assistance
with bathing, dressing and grooming, escorting to and from meals and
activities, reading mail, writing letters, shopping and other specialized
activities. These services are provided on an as-needed basis and at the
convenience of the resident within the overall operation of the facility.
Level Three: All of the services provided by Level One and Two, and, in
addition, provision of those services on a 24-hour basis. Further, this level
provides appropriate services for individuals who need help with incontinence.
The personnel working at each facility are employees of ARVAL.
A shortage of qualified personnel may require ARVAL to enhance its wage and
benefits package in order to compete with other providers of assisted living
and senior housing to attract and retain qualified individuals. In addition,
many health care workers in the nursing home industry are unionized. While
none of the ARVAL's employees are currently unionized, any unionization of
workers in the assisted living industry or at the Registrant's facilities could
increase labor costs. No assurances can be given that the facilities labor
costs will not increase, or that if they do increase, they can be matched by
corresponding increases in rental or management revenue. Currently the
Registrant's two assisted living facilities and three senior apartment
complexes employ approximately 77 persons.
As the senior population continues to grow and efforts to contain
health care costs intensify, assisted living provides an increasingly
important, cost-effective alternative to long hospital or nursing home stays.
Other demographic trends such as daughters and daughters-in-law returning to
the workplace, as well as the fact that more seniors are living alone, will
fuel demand for assisted living services and senior apartment facilities.
Responding to the rapidly rising costs of health care, government and
private insurance companies are adopting cost containment measures to reduce
lengths of stays at acute care hospitals and skilled nursing facilities. The
"push-down" effort by hospitals and skilled nursing facilities discharging
patients early, has created a need for more residential care options among the
elderly. As the cost effectiveness of assisted living becomes more widely
known, insurance companies and other healthcare-related organizations will
recommend assisted living to their clients and insureds with greater frequency.
On September 15, 1989, the Registrant began offering a total of 35,000
Units at $1,000 per unit The offering terminated on October 31, 1992 and the
Registrant realized gross offering proceeds of $18,665,000. In January and
March of 1993, the Partnership repurchased and effectively retired 10 units for
$8,500 and 3 units for $2,550, from Limited Partners. During 1993, the
Registrant applied for and earned block grants totaling a gross amount of
approximately $1,081,000 allocated to 2 of its properties. As of December 31,
1994, approximately $1,018,000 had been received. All of the proceeds from the
Offering and a portion of the proceeds from the block grants were allocated to
and spent on properties which the Registrant owns either outright or through
its interest as managing general partner of the partnership which holds title
to the respective property.
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Although the expiration of the minimum holding period (five to seven
years) is approaching for certain facilities, there is no definite plan to sell
any facility in accordance with a timetable. Any determination regarding sale
will be dependent upon the current and projected operating performance, the
needs of the Registrant, the availability of buyers and buyers' financing and,
in general, the relative merits of continued operation as opposed to sale. On
any sale, the Registrant may accept purchase money obligations, unsecured or
secured by mortgages as payment, depending upon then prevailing economic
conditions that are customary in the area in which the property is located,
credit of the buyer and available financing alternatives. (See ITEM 2,
"PROMISSORY NOTES RESULTING FROM THE SALE OF HERITAGE POINTE CLAREMONT"
["PROMISSORY NOTES"].) In such event, full distribution to the Partners may be
delayed until the notes are paid at maturity, sold, refinanced or otherwise
liquidated.
ITEM 2. PROPERTIES
INTRODUCTION
The Registrant owns facilities which operate in two distinct segments
of the senior housing market.
The Registrant owns fee title to Chandler Villas and is the managing
general partner of the partnership which owns Bradford Square. At both
properties, residents rent on a monthly basis and receive all meals, mail
service, linens and laundry. The staff provides services and security on a
24-hour basis. In addition, certain services ("Assisted Living") are provided
to residents in need of additional care such as bathing, grooming and assisting
with the self administration of medication. Higher monthly rents are charged
for such Assisted living services. Neither medical treatment nor facilities,
however, are provided. Each project is designed to cater to the needs of the
individuals who are ambulatory, in relative good health and without need of
specialized or continuing medical attention.
The Registrant also owns a site in the City of Camarillo, California
which is permitted for development of a 123 unit residential retirement
facility, designed along the Bradford Square/Chandler Villa concept.
The Registrant also owns 100% of 3 senior apartment complexes, Pacific
Villas in Pomona, California, Cedar Villas in Ontario, California, and Villa
Azusa in Azusa, California. The investment in these properties reflects the
General Partners' belief in the strength of the housing market for senior
citizens who choose the independent apartment life style in a complex specially
designed for their needs.
During 1993, the Registrant sold its general partner's interest in
Heritage Pointe Claremont.
RESIDENTIAL RETIREMENT FACILITIES AND SITE
BRADFORD SQUARE, CALIFORNIA
ACQUISITION - CAPITAL CONTRIBUTION AND OBLIGATIONS
In December of 1990, the Registrant became the sole General Partner of
ARVP III/Bradford Square, L.P., a California limited partnership ("ARVP
III/Bradford Square"), of which Bradford Square Limited Partnership No. 1, a
California Limited Partnership ("Bradford
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Square Limited") is the sole limited partner. Pursuant to the Agreement,
Bradford Square Limited contributed the existing facility ("Bradford Square"),
to ARVP III/Bradford Square and, simultaneously, through escrow, the Registrant
contributed approximately $450,000 cash and caused two loans, totaling
$3,600,000, to be made to ARVP III/Bradford Square. One of the loans, for
$2,800,000, was secured by the Project and guaranteed by the General Partners.
The other, for $800,000, was unsecured. The unsecured loan was repaid in full
from Gross Offering Proceeds on March 20, 1991, the remaining balance on the
$2,800,000 loan was paid in full with proceeds generated from new debt obtained
in December 1992. The beneficial owners of Bradford Square Limited Partnership
No. 1 are not affiliated with the Registrant. The Managing General Partner of
this partnership is Frederick P. Aquirre, Esq.
Under the Partnership Agreement, in any quarter in which revenue
generated by Bradford Square is insufficient to cover cash operating costs and
payments on any secured loans, the Registrant is obligated to advance to ARVP
III/Bradford Square sufficient cash to cover the shortfall. Any such advance
may, at the Registrant's discretion be recorded as either a capital
contribution or a loan. On any capital contribution, Registrant will receive a
preferred return equivalent to 9% on 125% of the Gross Offering Proceeds
contributed and 50% of the balance of any Cash Flow after the preferred return
is paid. On sale, refinance, or liquidation, ARVP III will receive a priority
return equal to 125% of all capital contributed, and 50% of any remaining
balance after this priority distribution is paid. As of March 1996, there had
been no cash shortfall and, therefore, no contribution was required of the
Registrant.
THE FACILITY
Bradford Square is located at 1180 N. Bradford Avenue, Placentia,
California, in central Orange County, six blocks from the Placentia Civic
Center and one mile from the Orange Freeway (57), a north-south artery linking
the County seat, Santa Ana, to the foothill communities. The Artesia Freeway
(91), connecting Los Angeles to the inland empire communities of Riverside and
San Bernardino, is three miles to the south. The facility is a two story
55,000 square foot New England style main building situated on approximately
2.5 acres containing 92 living units and common areas with a separate pavilion
to accommodate parties and other resident activities. Four different studio
apartment configurations range in size from 388 to 405 square feet all with
private patios or balconies. Common areas include a central dining room,
living room, sitting room and sun parlors. A beauty/barber shop and a private
dining room for residents to entertain family and friends are conveniently
located on premises. The two and one half acre site includes shuffleboard
courts, a resident maintained garden plot and a large park-like green with a
walking path and conversation areas.
The average occupancy rates during 1995, 1994, 1993, 1992, and 1991
were 92%, 96%, 93%, 88%, and 93%, respectively. The average rental rates for
each of these same years were $1,422, $1,387, $1,360, $1,347, and $1,356,
respectively. At March 10, 1996, 84 of the 92 Units were occupied for an
occupancy rate of 94%.
FINANCING
In December 1992 the partnership borrowed $2,500,000. The loan,
secured by a first trust deed against Bradford Square, and guaranteed by the
General Partners, bears interest at 5.25% in excess of the seven year treasury
yield and all of the unpaid principal and interest is due on January 1, 2007.
As of December 31, 1995 the unpaid principal balance was approximately
$2,443,000.
COMPETITION
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Drawing on information gathered through surveying residents and their
families, 60% or more of the residents residing in a given facility come from
within a 10-mile radius, thus defining the primary market. Therefore, using a
10-mile range as the criteria, Market Area 1 is comprised of the following
cities: Anaheim, Brea, Chino Hills, Diamond Bar, Fullerton, Garden Grove, La
Habra, La Habra Heights, La Mirada, La Palma, Orange, Placentia, Pomona, Santa
Ana and Tustin. The total population of this primary market is 1,265,052 with a
population of people age 65 and over of 110,232 (taken from California Cities,
Towns & Counties; Information Publications, California, 1996). The U.S. Census
Bureau, in 1990, reported that 13% of the 65+ population constitutes the primary
residential care market, equaling 14,330 seniors in Market Area 1.
Currently, there are 14 facilities in Market Area 1 offering services
and features similar to Bradford Square. These facilities, including Bradford
Square, have a combined total of 1,606 units, potentially housing approximately
1,927 seniors, or about 19% saturation of the target market. Drawing on
resident and family survey data, the market may be expanded to 33% or less due
to units rented by residents coming from the primary area. Market saturation
is also increased by indirect competition from small board and care homes,
minimum service senior apartments and residential facilities lacking assisted
living services; such facilities are not included in the figures.
Currently, ARV Assisted Living operates four facilities in Market Area
1.
CHANDLER VILLAS, ARIZONA
ACQUISITION, CAPITAL CONTRIBUTION AND OBLIGATIONS
This facility was purchased in September of 1990 for $3,400,000. The
Seller was Superior Bank, FSB of Oak Brook Terrace, Illinois, which acquired
the facility on foreclosure of a loan it had extended to the original
developer. Registrant paid $900,000 in cash and obtained a $2,500,000 loan
secured by the Project. Prior to December 31, 1991, the loan was paid in full.
THE FACILITY
The facility is located in the middle of the Valley of the Sun at 101
South Yucca Street, one block south of Chandler Boulevard, the main east west
artery in Chandler, Arizona, 20 minutes from Phoenix's Sky Harbor Airport.
Chandler Community Hospital is less than 1 mile away. Regional shopping malls
are within a short drive of the facility and neighborhood shopping centers are
close by. The surrounding neighborhood consists of a mix of commercial and
single family homes and apartments.
Chandler Villas is located on an 8 acre site, and consists of 14 tile
roofed buildings containing a total of 164 one and two bedroom apartment style
units with up to 900 square feet of living space per unit. Common areas
include a dining room, living room, library, beauty salon, and a recreation
building with nearby pool, spa and shuffleboard court. Covered parking is
provided.
The average occupancy rates during 1995, 1994, 1993, 1992, and 1991
were 99%, 99%, 99%, 97%, and 88%, respectively. The average rental rates for
each of these same years were $716, $704, $688, $679, and $678, respectively.
At March 10, 1996, 156 of the 164 Units were occupied for an occupancy rate of
95%.
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FINANCING
In December, 1992 the Partnership borrowed $2,500,000. The loan,
secured by a first trust deed against Chandler Villas and guaranteed by the
General Partners, bears interest at 5.25% in excess of the seven year treasury
yield and all unpaid principal and interest is due on January 1, 2007. As of
December 31, 1995, the unpaid principal balance was approximately $2,443,000.
COMPETITION
Based on market surveys that conclude that 60% or more of the
residents residing in a given facility come from within a 10-mile radius, the
primary market for Chandler Villas may be defined by the following cities:
Apache Junction, Bapchule, Chandler, Guadalupe, Laveen, Maricopa, Mesa,
Ocotillo, Scottsdale, Sun Lakes, and Tempe. The total population of this
primary market is 712,812 (taken from California Cities, Towns & Counties;
Information Publications, California, 1996). Assuming that at least 8% of the
total population is 65 years of age or older, approximately 57,024 seniors are
residing within a 10-mile radius of Chandler Villas. The U. S. Census Bureau,
in 1990, reported that 13% of the 65+ population constitutes the primary
residential care market, equaling 7,413 seniors in Market Area 2.
Currently, there are four facilities in Market Area 2 offering
services and features similar to Chandler Villas. These facilities have a
combined total of 615 units, potentially housing approximately 676 seniors, or
about 9% saturation of the target market. The market may be expanded to 33% or
less due to units rented by residents coming from the primary area. Market
saturation is also increased by indirect competition from small board and care
homes, minimum service senior apartments and residential facilities lacking
assisted living services; such facilities are not included in the figures.
VILLA LAS POSAS, CALIFORNIA (SITE)
LOCATION
The 3.10 acre site is located in the City of Camarillo, County of
Santa Barbara, California, on Las Posas Road, a major north-south artery
approximately one mile north of State Highway 101, the major thoroughfare in
the community. Camarillo, a city of approximately 47,000 residents, is 45
miles northwest of Los Angeles, 7 miles east of Oxnard (population
approximately 125,000) and 7 miles west of Thousand Oaks (population
approximately 101,000).
DEVELOPMENT COSTS AND FEES; CONSTRUCTION FINANCING
The site was purchased from an unrelated seller for $1,210,000 and as
of December 31, 1995 the Registrant had paid approximately $1,317,000 in
engineering, architectural and other predevelopment costs.
Villa Las Posas will be a 3-story, Mediterranean style building
containing 123 units. Forty percent (40%) of the 89,000 square feet of the
assisted living project will be devoted to common areas consisting of amenities
such as two living rooms with fireplaces, dining and laundry rooms, a Health
Center, beauty salon, commercial kitchen, activities room, and a library. A
central courtyard, landscaped gardens and meandering walkways will also be an
integral part of the facility.
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Construction of Villa Las Posas is expected to begin in May of 1996
with completion scheduled for May of 1997. Construction financing is currently
in negotiation with a commercial lender.
COMPETITION
From their analysis of the general competitive conditions to which
Villa Las Posas would be subject, the General Partners have determined that the
relevant market area consists of Camarillo and Oxnard and adjacent communities
of El Rio and Leesdale. The concentration of this population base is within 10
miles of the site, and easily accessible by major arteries. The secondary
market area of Thousand Oaks-Newbury Park is also within this radius, but is
considered less important to the success of the project because of its
evolution as an extension of the greater Los Angeles Metropolitan area and
resulting identification with this larger market. The City of Ventura
(population approximately 85,000) is 15 miles to the northwest and is a
relatively self-contained market area, and has not been considered as a
continuing source of residents.
Existing competition within the primary market area consists of two
residential-congregate care retirement complexes which offer substantially
similar amenities and/or services. The first, opened approximately 14 years
ago, is a 107 unit complex located about 2 miles from the site, is licensed to
distribute medication and places a greater emphasis on health services rather
than on independent life-style and community activities. This facility offers
similar tenant services in generally smaller living accommodations with less
attractive common areas and grounds than planned for Villa Las Posas. The
second, opened in the early 1970s, is a 122 unit facility in Oxnard
approximately 9 miles from the site, also offering semi-private and private
accommodations, services and pricing similar to those to be offered by Villa
Los Posas. The location of this competitor coupled with the general condition
of the building and grounds attract residents primarily on government assisted
programs.
SENIOR APARTMENTS
GENERAL
FORMATION OF THREE (FORMER) PARTNERSHIPS
In January 1992, the Registrant entered the senior apartment market by
acquiring a partnership interest in Heritage Pointe Claremont Partners, L.P., a
California Limited Partnership ("HPCP"). Prior to the Registrant's admission,
HPCP's Sole Partners were Urban Housing Systems, Inc., a California
corporation, General Partner ("UHSI") and two individuals (Michael A. Costa and
John M. Huskey) who owned 100% of UHSI's stock. As a result of the
Registrant's admission, the Registrant and UHSI became Co-General Partners of
HPCP with a 50% and 12.5% interest, respectively, and Messrs. Costa and Huskey
became the two Limited Partners each having an 18.75% partnership interest.
Development and entitlement work began thereafter and resulted in a completed
project in 1993 as explained below (See ITEM 2, "PROMISSORY NOTES").
Later in 1992, the Registrant, UHSI and Messrs. Costa and Huskey
formed 2 additional partnerships, each owning the same percentages as in HPCP.
Each of these partnerships was created to acquire a senior apartment complex
from an unrelated seller. One partnership (Heritage Pointe Pomona Partners,
L.P. ["HPPP"]) purchased Pacific Villas, a 132 unit facility in Pomona, and the
other partnership (Heritage Pointe Ontario Partners, L.P. ["HPOP"]) purchased
Cedar Villas, a similar 137 unit facility in Ontario, California.
11
<PAGE> 13
At the time of these three partnership formations and property
acquisitions, neither UHSI nor Mr. Costa nor Mr. Huskey were affiliated with
the Registrant. Subsequently, however, Mr. Costa became a director and vice
president of Registrant's general partner, positions from which he resigned in
the first quarter of 1994.
THE REGISTRANT'S BUY-OUT OF UHSI, COSTA & HUSKEY FROM EACH OF THE THREE
PARTNERSHIPS
In May 1993, UHSI assigned its interest in HPCP, HPPP and HPOP to
Costa and Huskey. As a result, their interests in these partnership increased
from 18.75% to 25% each. The Registrant subsequently purchased all of Messrs.
Costa's and Huskey's interests in each of HPCP, HPPP and HPOP for $198,000,
cash plus, the purchase agreement obligated the Registrant's individual and
corporate general partners to indemnify and hold the two limited partners and
UHSI harmless. As part of the transaction the general partners received
$96,000 for providing the indemnification. After this transaction, neither
UHSI nor Mr. Costa nor Mr. Huskey were affiliated with the Registrant or its
General Partners.
The Registrant now owns 100% of Pacific Villas and Cedar Villas, and
has sold Heritage Pointe Claremont, all as described below. In addition, in
1993, independent of UHSI and Messrs. Costa and Huskey, the Registrant
purchased an additional facility, Villa Azusa, which it now owns and operates.
The 3 senior apartments which the Registrant operates are described
below.
PACIFIC VILLAS
TERMS OF PURCHASE
The Partnership which the Registrant formed to purchase Pacific Villas
and which was subsequently liquidated on the Registrant's purchase of all of
other partnership interests, as described above, is referred to below as HPPP.
Pacific Villas was purchased for $5,621,000 in August 1992, from a
non-related entity which had owned and operated it from 1987. $525,000 of the
purchase price was paid in cash. HPPP paid a real estate commission of
$150,000 to UHSI. At the close of escrow HPPP took Pacific Villas subject to,
but did not assume, a loan in favor of Fidelity Federal Bank. The loan is
evidenced by a note due on November 1, 2017 and requires monthly payments of
principal and interest designed to fully amortize it as of the due date. The
balance of the purchase price was funded through the assumption of certain
liabilities totaling approximately $75,000. The interest rate is adjusted
monthly by adding a rate differential of 2.25% to the most recent available
monthly weighted average cost of funds by the Federal Home Loan Bank of San
Francisco to its 11th District members. At December 31, 1995, this loan had an
unpaid principal balance of approximately $4,314,900. The monthly payment is
approximately $30,000, of which approximately $5,200 is being credited to
principal. The loan is evidenced by a note and the note is secured by a first
deed of trust. The note and the deed of trust contain due-on-sale and
due-on-encumbrance clauses which permit the lender to accelerate the loan's
maturity date if the borrower, without the lender's prior written consent,
sells, encumbers, or otherwise transfers an interest in the property. HPPP did
not assume the loan and did not pay an assumption fee. Rather, it relied on
the lender's August 19, 1992 certificate of outstanding indebtedness.
12
<PAGE> 14
The balance of the purchase price was evidenced by a one year,
$424,939 note in favor of the seller. Interest only at 8% per annum, was
payable in monthly installments of $2,833 and this note was paid in full on
August 25, 1993.
THE FACILITY
Pacific Villas consists of 132 units, 115 one bedroom, one bath, and
kitchen and 17 two bedroom, one bath and kitchen apartments spread out among
4.7 landscaped acres. This gate guarded community also features an intercom
system connecting each apartment with the gate, a pool and spa, park benches
along the walkways and a satellite dish which makes broad T.V. coverage
available to all residents. The complex was built in 1986 and has been well
maintained.
LOCATION
Pacific Villas is located at 3642 North Garey Avenue, in the northwest
residential section of Pomona. This area has a unique college-town atmosphere
as several prestigious universities are located in Pomona and in the immediate
bordering towns of Claremont and La Verne.
More generically, the facility lies in the northeast section of Los
Angeles County, near the border with San Bernardino County, and although its
neighborhood is essentially residential, it is less than a block away from
Foothill Boulevard, a major thoroughfare. In addition, it is readily
accessible to the San Bernardino Freeway (10), the Foothill Freeway (210), the
Pomona Freeway (60), the Orange Freeway (57), and the Corona Expressway (71).
The property is located approximately 30 miles from downtown Los Angeles, five
miles from Ontario, 20 miles from San Bernardino, and 25 miles from
Pasadena/Glendale.
Pomona, a city of approximately 140,000 residents, and its neighboring
towns in the San Gabriel Valley may be described as "bedroom" communities with
relatively high light industrial development and predominantly middle-income
demographics. The property is situated in an area that is less developed than
other sections of Pomona. While conveniences such as public transportation,
shopping and restaurants are within walking distance of the facility, the
neighborhood also features wooded areas and low density zoning.
MARKETING AND RENTAL DATA
The project's primary market is Pomona and the neighboring residential
communities of Claremont, Montclair, Upland, Chino, Fontana, Ontario and La
Verne. There is a combined population of approximately 500,000 all within a 10
mile radius of Pacific Villas. The General Partners' experience with the 8
facilities they own and/or operate within a 30 mile radius of this project and
their study of this market area demonstrates favorable demographics and
population trends necessary to sustain current high occupancy rates.
The average occupancy rates during 1995 and 1994 were 90% and 95%,
respectively. The average rental rates for each of these same years were $560
and $547, respectively. This data is unavailable for the years 1992 and 1993.
At March 17, 1996, 119 of the 132 apartments were rented for an occupancy rate
of 90%. All rental agreements are an annual lease with an option to renew on a
month-to-month basis at lease expiration.
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<PAGE> 15
COMPETITION
Existing competition within the primary market area consists of 10
senior apartments with a total capacity of 1,316 units. Sizes range from 65 to
186 units with average prices of $0.68 to $1.23 per square foot for larger
units. Pacific Villas units now rent from $0.87 to $0.89 per square foot. The
two-bedroom units currently rent for less per square foot than the
one-bedrooms.
There are no facilities in Pomona that are directly competitive with
Pacific Villas. All similar projects in neighboring communities were built
between 1983 and 1992 . The vacancy range for all senior citizen oriented
apartment projects in the market area is 0-10%.
Pacific Villas features 600 square foot 1 bedroom apartments and 767
square foot 2 bedroom apartments. Concerning possible new entries into this
Market, even though obtaining construction financing is problematic in the
current economic climate, low vacancy rates have traditionally attracted direct
competition.
CEDAR VILLAS
TERMS OF PURCHASE
The Partnership which the Registrant formed to purchase Cedar Villas
and which was subsequently liquidated on the Registrant's purchase of all of
other partnership interests, as described above, is referred to below as HPOP.
Cedar Villas was purchased on October 1, 1992 for $4,655,000 from a
non-related entity which had owned and operated it from 1986. $553,000 of the
purchase price was paid in cash, and approximately $4,112,000 was taken by the
Project subject to, but not assuming, a loan in favor of Standard Federal
Savings Bank. The loan is evidenced by a note due February 1, 1999 and
requires monthly payments of principal and interest designed to fully amortize
it as of the due date. The loan is evidenced by a note and the note is secured
by a first deed of trust against the Project. The interest rate is adjusted
monthly by adding a rate differential of 2.25% to the most recent available
monthly weighted average cost of funds by the Federal Home Loan Bank of San
Francisco to its 11th District members. At December 31, 1995, the loan had an
unpaid balance of approximately $3,932,000. The monthly payment is
approximately $31,000 of which approximately $4,875 is being credited to
principal. The note and the deed of trust contain due-on-sale and
due-on-encumbrance clauses which permit the lender to accelerate the loan's
maturity date if the borrower, without the lender's prior written consent,
sells, encumbers, or otherwise transfers an interest in the property. HPOP did
not assume the loan and did not pay an assumption fee, rather it relied on the
lender's September 30, 1992 certificate of outstanding indebtedness.
THE FACILITY
Cedar Villas is a 137 unit senior apartment complex designed for
active and semi-active persons aged 57 and older. Built in 1983, the complex
covers 3.4 acres and includes 104 one bedroom and 33 two bedroom units
containing 460 and 677 square feet respectively.
14
<PAGE> 16
All apartments feature garbage disposals, an all electric kitchen,
frost free refrigerators, solar hot water, smoke detectors, fire sprinklers,
walk in closets and air conditioning. Carpeting and drapes/mini-blinds are
also included. Laundry facilities are located in the clubhouse. Approximately
50% of the total facility is landscaped open space, on which is located a 2040
square foot central recreation building and rental office. The central
courtyard is equipped for horseshoes, barbecues and patio parties. There are
107 parking spaces, approximately half of them covered.
LOCATION
Cedar Villas is located at 301 E. Cedar Street, in the western
residential section of Ontario bordered by Montclair and Pomona to the west,
Rancho Cucamonga and Upland to the north, and Chino and Fontana, south and east
respectively. The facility lies in the southwest section of San Bernardino
County, and although its neighborhood is essentially residential, it is less
than a mile away from the Pomona Freeway the major artery connecting downtown
Los Angeles, 40 miles to the west and San Bernardino, 20 miles to the east.
Ontario, a city of approximately 153,000 residents, and its
neighboring towns in the Inland Empire may be described as "bedroom"
communities with relatively high light industrial development and predominantly
middle-income demographics. The Ontario International Airport causes the city
to become the core of the market area of surrounding communities.
MARKET DATA
The project's primary market is Ontario and the neighboring
residential communities of Claremont, Montclair, Upland, Chino, Pomona and
Rancho Cucamonga. There is a combined population of approximately 650,000 all
within a 10 mile radius of Cedar Villas. The General Partners' experience with
the 8 facilities they now own and/or operate within a 30 mile radius of this
project and their study of this market area demonstrates favorable demographics
and population trends necessary to sustain current high occupancy rates.
The average occupancy rates during 1995 and 1994 were 93% and 93%,
respectively. The average rental rates for each of these same years were $448
and $443, respectively. This data is unavailable for the years 1992 and 1993.
At March 17, 1996, 127 of the 137 apartments were rented for an occupancy rate
of 93%. All rental agreements are on an annual lease with an option to renew
on a month-to-month basis at lease expiration.
COMPETITION
Existing competition within the primary market area consists of 9
senior apartments with a total capacity of 1,390 units. Sizes range from 60 to
232 units with average prices of $0.72 to $1.23 per square foot for larger
units. Cedar Villas units now rent from $0.72 to $0.83 per square foot.
There are three comparable senior apartment complexes in Ontario, all
built between 1984 and 1986, ranging in size from 60 to 101 units. Apartment
sizes, pricing and amenities are similar to Cedar Villas.
15
<PAGE> 17
The remaining facilities, Sunnyside II and Sunnyside III, are smaller
complexes with smaller unit sizes and slightly higher pricing per square foot
than Cedar Villas. Their ongoing vacancy rates are approximately the same as
Cedar Villas.
Projects in the remainder of the primary market show vacancy rates
from 2% to 10.4% according to a rental survey conducted in January, 1995.
VILLA AZUSA
On May 26, 1993, the Registrant purchased from an independent third
party, its third self contained senior apartment complex.
TERMS OF PURCHASE
Villa Azusa was purchased for $4,550,000, $1,295,000 of which was paid
in cash, and the Registrant took the property subject to existing bank
financing in favor of Fidelity Federal Bank for approximately $3,229,000. The
balance of the purchase price was funded through the assumption of other
liabilities totaling approximately $26,000. The loan is evidenced by a note
due February 1, 2017 and requires monthly payments of principal and interest
designed to fully amortize it as of the due date. The interest rate is
adjusted monthly by adding a rate differential of 2.25% above the monthly
eleventh district cost of funds. The note and deed of trust contain due on
sale clauses.
The bank has accepted monthly payments from June 1992 onward and has
not exercised any rights under the due on sale clauses which state the bank may
declare the unpaid balance immediately due and payable should the property be
sold. At December 31, 1995, the note had an unpaid balance of approximately
$3,067,000. The monthly payment is approximately $22,000 of which
approximately $5,050 is being credited to principal.
THE FACILITY
Villa Azusa is a 147 unit, one bedroom, gated senior apartment
complex. The facility was built in 1979 and has undergone renovations, which
were completed in the Spring of 1994. All apartments feature carpeting and
drapes, garbage disposal, an all electric kitchen, electric hot water, smoke
detectors, walk-in closets and air conditioning. The recreation center offers
the convenience of laundry facilities and the luxury of a therapeutic spa. The
facility covers 3.44 acres, of which 50% is landscaped.
LOCATION
The address is 200 E. Gladstone Street, in the southeast residential
section of Azusa bordered by single family and commercial retail development,
in the northeast section of Los Angeles County, less than a mile away from the
210 Freeway and 5 miles from the 10 Freeway, the main artery connecting it to
downtown Los Angeles.
16
<PAGE> 18
MARKET DATA
Azusa, a city of approximately 43,300 residents and its neighboring
cities of Covina, West Covina, San Dimas, Glendora, Duarte, Monrovia, Baldwin
Park and Irwindale, represents a 12 mile radius rental market area. The
General Partners' experience with the 8 facilities they now own and/or operate
within a 30 mile radius of this project and their study of this market area
demonstrates favorable demographics and population trends necessary to sustain
current high occupancy rates.
The average occupancy rates during 1995 and 1994 were 82% and 84%,
respectively. The average rental rates for each of these same years were $477
and $465, respectively. This data is unavailable for the years 1992 and 1993.
At March 17, 1996, 139 of the 147 apartments were rented for an occupancy rate
of 95%. All rental agreements are on an annual lease with an option to renew
on a month-to-month basis at lease expiration.
COMPETITION
Existing competition within the primary market area consists of 5
senior apartments with a total capacity of 675 units. Sizes range from 60 to
168 units with average prices of $0.83 to $1.09 per square foot. Villa Azusa
units now rent from $0.89 to $1.10 per square foot. Projects in the remainder
of the primary market show vacancy rates from 0% to 20.0%.
PROMISSORY NOTES RESULTING FROM THE SALE OF HERITAGE POINTE CLAREMONT
HERITAGE POINT CLAREMONT PARTNERS, L.P. ("HPCP")
Effective January 14, 1992, the Registrant became a 50% co-general
partner with UHSI which owned a 12.5% interest, and Messrs. Costa and Huskey,
each of whom owned 18.5% of the Partnership as limited partners. The partners
contributed cash and all of their rights in several contracts to purchase,
finance and develop a senior apartment complex in Claremont, California. Among
the operating contracts was a Disposition and Development Agreement with the
City of Claremont and its Redevelopment Agency, pursuant to which HPCP
proceeded to develop plans for the project. Early in 1993, as explained above,
Messrs. Costa and Huskey sold and assigned their entire interests and that of
UHSI which they had previously acquired to the Registrant.
ACQUISITION
HPCP purchased an undeveloped portion of land in Claremont, California
from the Claremont Redevelopment Agency for $1,300,000 on October 5, 1992, and
obtained a construction loan agreement from a commercial lender in 1992 for
$5,600,000. With the loan proceeds, HPCP built a 154 unit senior apartment
complex with final construction completed in November, 1993. HPCP received its
certificate of occupancy in November of 1993 and opened in December of 1993.
In its 1993 Pacific Coast Builders Conference, an industry association covering
the 14 western states presented "Golden Nugget" awards (its highest category)
to Heritage Pointe Claremont in two categories, (i) best senior housing
development; and (ii) best attached affordable housing development.
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<PAGE> 19
SALE OF PROJECT, RECEIPT OF NOTES
On May 31, 1993, Michael Costa and John Husky sold their partnership
interests in HPCP to the Registrant (See above in this ITEM 2 "SENIOR
APARTMENTS, GENERAL.") Then, in September 1993, the Registrant contracted to
sell the project to Claremont Senior Partners ("CSP") for $12,281,900. The
managing general partner of the Registrant (ARVAL) is the Special Limited
Partner of CSP. The transaction closed on December 30, 1993. CSP assumed the
balance of the construction loan of $4,852,216 (although the Registrant
remained fully liable for the loan) and the Registrant had taken back two notes
receivable to finance the sale.
In September 1994, CSP obtained permanent financing, the proceeds of
which were primarily utilized to pay off the existing balance on the
construction loan, and a portion of the existing balance on the construction
loan, and a portion of the existing principal and interest on the Partnership's
related promissory notes. As a result, both promissory notes were amended and
the combined balance due was reduced to $6,076,110 (eliminating the portion
related to the construction loan). The notes bear interest at 8% and the
outstanding balance and interest are payable from excess cash flows as defined
in the CSP partnership agreement. Additionally, these notes continue to be
secured by certain CSP partners' interests in CSP and are due January 25, 2010.
In January 1995, CSP paid $1,145,000 to the Partnership as principal
and interest reductions of the promissory notes. This transaction has not been
treated as a completed sale for accounting purposes under the requirements of
Financial Accounting Standards Board 66; however, the sale is considered
consummated. Accordingly, the property is reported as property under contract
for sale, the buyer's down payment and payments on the promissory notes are
reflected as deposits under contract for sale and the promissory notes are not
recorded in the accompanying consolidated balance sheet.
ITEM 3. LEGAL PROCEEDINGS
There are various legal proceedings pending to which the
Registrant is a party, or to which some of its properties are subject, arising
in the normal course of business. The Registrant does not believe the ultimate
resolution of those proceedings will have a material adverse affect on the
Registrant's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to Unit Holders in the fourth
quarter of the fiscal year.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
18
<PAGE> 20
There is no established public trading market for the
Registrant's securities. In January and March of 1993, the Registrant
repurchased and retired ten units and three units, respectively.
As of December 31 1995, there were approximately 1,753 Unit
Holders of record owning 18,665 units. For the years ended December 31, 1995
and 1994, the Registrant made distributions of $15.03 per unit and $150.71 per
unit, respectively, all of which represented return of capital to the Unit
Holders.
ITEM 6. SELECTED FINANCIAL DATA
The following table represents financial data for each of the
last five fiscal years. Certain of this financial data has been derived from
the Registrant's audited financial statements included elsewhere in this Form
10-K and should be read in conjunction with those financial statements and
accompanying notes and with "Management's Discussion and Analysis of Financial
Condition Results of Operations" at Item 7. This table is not covered by the
Independent Auditors' Report.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $6,094,393 $6,135,686 $5,381,887 $3,694,105 $3,046,222
Net Income (Loss) (463,866) (698,503) (775,288) 80,316 (167,212)
Net Income (Loss) (per weighted
average Limited Partner Units (24.62) (37.07) (41.15) 5.04 (17.47)
outstanding)
Total Assets 32,794,370 34,794,199 35,377,634 29,294,360 13,101,150
Partners' Capital 8,307,139 9,054,092 12,592,045 14,027,477 9,349,120
Long Term Debt 20,746,167 21,279,251 19,660,933 14,303,352 2,787,853
Distributions of Earnings -0- -0- -0- 5.04 -0-
Distributions - Return of Capital 15.03 150.71 34.45 55.39 66.56
Total Distributions (per weighted 15.03 150.71 34.45 60.43 66.56
average Limited Partner units
outstanding)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY
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<PAGE> 21
The General Partners expect that the cash to be generated from
operations of all the Registrant's properties will be adequate to pay operating
expenses and provide distributions to the Partners. On a long-term basis, the
Registrant's liquidity is sustained primarily from cash flow provided by
operating activities. During 1995, net cash provided by operating activities
was approximately $906,000 compared to $835,000 and $598,000 for the years
ended 1994 and 1993, respectively.
During 1995, the Registrant provided net cash in investing activities
of $755,000 compared to net cash provided of $1,166,000 and net cash used of
$6,231,000 for the years ended 1994 and 1993, respectively. The Registrant's
investing activities consisted of capital improvements made on its five
properties, construction costs for the property under construction and deposits
received on the property under contract for sale.
During 1995, the Registrant used net cash in financing activities of
$2,670,000 compared to net cash used of $1,112,000 and net cash provided of
$3,620,000 for years ended 1994 and 1993, respectively. The Registrant's
financing activities consisted of borrowings or repayments on notes payable and
lines of credit, construction loan draws and distributions made to partners.
The General Partners are not aware of any trends, other than national
economic conditions, which have had or which may be reasonably expected to have
a material favorable or unfavorable impact on revenues or income from the
operations or sale of properties. The General Partners believe that if the
inflation rate increases they will be able to pass the subsequent increases in
operating expenses onto the residents at the properties by way of higher rental
and assisted living rates. The Registrant has long term debt of approximately
$20,746,000 as of December 31, 1995. Of this amount, $72,000 is due by December
1, 2000, $4,886,000 is due by January 1, 2007, $3,067,000 is due by February 1,
2017, $4,315,000 is due by November 1, 2017, $3,932,000 is due by February 1,
2019, and $4,474,000 is due by January 1, 2025.
CAPITAL RESOURCES
The Registrant contemplates spending approximately $150,000 for
capital expenditures during 1996 for physical improvements at its five
projects. The funds for these improvements should be available from
operations.
There are no known material trends, favorable or unfavorable, in the
Registrant's capital resources, and there is no expected change in the mix of
such resources.
RESULTS OF OPERATIONS
Revenue and expenses for the year ended December 31, 1995, 1994 and
1993 includes rental income and assisted living revenue from 5 facilities,
interest earned on cash balances and other revenue. In 1995, the Registrant's
rental revenues decreased over the prior year due to lower aggregate occupancy
levels. In 1994, the Registrant's rental revenues increased over the prior year
due to higher aggregate occupancy levels and rental rates. Total revenues for
the year ended December 31, 1995, were $6,094,000 compared to $6,136,000 and
$5,382,000 for the years ended December 31, 1994 and December 31, 1993,
respectively. Revenues decreased by 1% from 1994 to 1995 and increased by 14%
from 1993 to 1994.
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<PAGE> 22
The largest component of revenue, rent, decreased by less than 1% from
1994 to 1995 and increased by 11% from 1993 to 1994. The decrease in rent in
1995 was due to a decrease of 2% in occupancy. The increase in 1994 was due to
the acquisitions of senior apartment complexes and the impact of a full year of
operations of certain facilities opened during the previous year.
Revenue from assisted living income decreased 5% from 1994 to 1995 and
decreased less than 1% from 1993 to 1994. Assisted living income decreased
from 1994 to 1995 and from 1993 to 1994 due to decreases in the number of
residents on the assisted living program.
Interest and other revenue decreased slightly from 1994 to 1995 and
increased significantly from 1993 to 1994 due to interest earned on the notes
receivable held in conjunction with the sale of HPCP. Grant income was
recognized in 1993 and 1995 due to grants from the City of Ontario and the City
of Azusa in conjunction with the affordable housing subsidy agreement between
the Registrant and the city.
Sources of revenue for the years ended December 31, 1995, 1994 and
1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Rent $5,130,206 $5,154,273 $4,646,321
Assisted Living 344,190 364,178 366,594
Interest 499,646 530,175 30,275
Grants 40,686 -0- 285,693
Other 79,665 87,060 53,004
------ ------ ------
Total Revenue $6,094,393 $6,135,686 $5,381,887
========== ========== ==========
</TABLE>
Total costs and expenses for the years ended 1995, 1994 and 1993 were
$6,558,000,$6,834,000 and $6,157,000, respectively.
The largest component of expenses, rental property operations, consist
primarily of property management costs, payroll related expenses, utilities,
food expenses and maintenance and supplies. Rental property operating expenses
decreased by 3% from 1994 to 1995 and increased by 9% from 1993 to 1994. The
increase or decrease in rental property operating expenses is primarily due to
the increase or decrease in aggregate occupancy levels, certain payroll
expenses, safety bonuses, and property management fees.
Assisted living expenses consist primarily of the related payroll
expense. Assisted living expenses decreased by 20% from 1994 to 1995 and were
essentially unchanged from 1993 to 1994. Assisted living expenses decreased as
a result of the decrease in the related staff providing assisted living
services. The decrease corresponds with the decrease in assisted living
revenue.
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<PAGE> 23
General and administrative expenses are comprised of, but not limited
to, costs for accounting, partnership administration, bad debt, data
processing, investor relations, insurance and professional services. General
and administrative expenses decreased by 6% from 1994 to 1995 and increased by
17% from 1993 to 1994. The decrease in 1995 was due to the elimination of
marketing commissions by the registrant. The increase in 1994 is due to the
acquisition of senior apartments and the impact of a full year of operations.
Depreciation and amortization decreased by 4% from 1994 to 1995 and
decreased by 15% from 1993 to 1994. Depreciation and amortization decreased due
to a portion of fixed assets becoming fully depreciated.
Property taxes increased by 2% from 1994 to 1995 and by 5% from 1993
to 1994. The increase is due to the increase in assessed values of the
properties.
Interest expense decreased by 4% from 1994 to 1995 and increased by
42% from 1993 to 1994. The decrease in interest from 1994 to 1995 is due to the
decrease in the principal balance outstanding on the line of credit. The
increase in interest expense from 1993 to 1994 is primarily due to the interest
on the construction and permanent loans related to HPCP and CSP.
Selected costs and expenses for the years ended December 31, 1995,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Rental Property Operations $2,496,606 $2,585,519 $2,363,824
Assisted Living 168,387 209,417 211,979
General and Administrative 401,645 428,890 366,050
Depreciation and Amortization 1,253,845 1,305,284 1,539,040
Property Taxes 332,849 269,740 257,907
Interest 1,868,250 1,949,480 1,368,180
</TABLE>
FUTURE CASH DISTRIBUTIONS
The General Partners believe that the Registrant's ability to make cash
distributions to limited partners depends on factors such as:
(i) Development and financing costs associated with the Camarillo
site.
(ii) The Registrant's ability to rent the available units and
maintain high occupancies.
(iii) The Registrant's ability to control both operating and
administrative expenses.
(iv) The Registrant's ability to maintain adequate working capital.
22
<PAGE> 24
(v) The absence of any losses from uninsured property damage
(e.g., earthquakes) or future litigation.
(vi) The Registrant's ability to generate proceeds from the sales
of its properties.
During fiscal 1994, the Registrant declared a $1,885,503 special
distribution as a result of the sale of HPCP.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 (SFAS No.121), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." SFAS No. 121 requires the Registrant to prepare an assessment of
certain long-lived assets, including many intangible assets, for possible
impairment when events or circumstances indicate the carrying amounts of these
assets may not be recoverable. The Registrant adopted this new pronouncement
in fiscal without impact to its financial statements.
23
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and the Report of Independent Auditors are
listed at Item 14 and are included beginning on Page F-1.
24
<PAGE> 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
INDIVIDUAL GENERAL PARTNERS OF THE REGISTRANT
GARY L. DAVIDSON. Mr. Davidson, age 61, an attorney, received his
Bachelor's Degree in 1958 and his Juris Doctor Degree in 1961 from the
University of California at Los Angeles. Mr. Davidson has practiced law in
Orange County since 1962. During his professional career, he has been active
in numerous business and professional sports ventures. In 1979, with Mr. Booty
and others, he founded the predecessor to ARVAL. Mr. Davidson serves as a
Director and Chairman of the Board of ARVAL.
JOHN A. BOOTY. Mr. Booty, age 57, is a graduate of the University of
California at Berkeley, from which he also holds a Master's Degree in Business
Administration. Mr. Booty was with Ford Motor Company Aeronutronics,
Development Research Associates and Booz Allen and Hamilton, of which Mr. Booty
was a Vice President. In 1979, with Mr. Davidson and others, he founded
California Retirement Villas Corporation which merged into ARVAL. Mr. Booty
serves as a Director and President of ARVAL.
DAVID P. COLLINS. Mr. Collins, age 58, received his Bachelor's Degree
from St. Anselm College, Manchester, New Hampshire in 1960. His first
association with the ARVAL occurred in 1982. Mr. Collins is a registered
principal with the National Association of Securities Dealers, Inc., and from
its formation in December 1985, has been President of ARV Capital Corporation.
Mr. Collins is a member and former Chairman of the Board of the Orange County
Chapter of the International Association for Financial Planners. For many
years, Mr. Collins was active in the field of international finance, mostly in
the Middle East, and in 1971, was a founder of the World Trade Center
Association of Orange County. Mr. Collins is a Director and Senior Executive
Vice President of ARVAL and President of ARV Capital Corporation.
JOHN S. JASON, 60, graduated from the University of Indiana with a
degree in Business Administration. He was associated with KPMG Peat Marwick
LLP for 6 years. In 1979, with Messrs. Booty, Davidson and Rota, he founded
the predecessor to ARVAL. In February 1993, Mr. Jason retired from active
service with ARVAL and retired from his positions as a Director and as
Executive Vice President of ARVAL. Mr. Jason is currently retired and not
gainfully employed.
TONY ROTA, 67, is a licensed real estate broker, and has been active
in real estate investments since 1958. In 1979, with Messrs. Booty, Davidson
and Jason, he founded the predecessor to ARVAL. In November 1992, Mr. Rota
retired from active service with ARVAL and retired from his positions as a
Director and as Vice President of ARVAL. Mr. Rota is currently retired and not
gainfully employed.
25
<PAGE> 27
EXECUTIVE OFFICERS OF ARV ASSISTED LIVING, INC. ("ARV")
For a description of Messers. Davidson, Booty and Collins, please see
above.
GRAHAM P. ESPLEY-JONES. Mr. Espley-Jones, age 36, graduated from
Pepperdine University with an MBA and from San Diego State University with a
degree in Business Administration. Mr. Espley-Jones is a Registered
Representative and Financial Principal with the National Association of
Securities Dealers ("NASD"). From 1985 to 1988 he served as the Controller for
the real estate division of First California Savings Bank. Mr. Espley-Jones
joined ARVAL in 1988 and serves as Secretary and Chief Financial Officer.
DIRECTORS OF ARVAL
For a description of Messers. Davidson, Booty and Collins, please see
above.
R. BRUCE ANDREWS. Mr. Andrews, age 55, has served as President and
Chief Executive Officer of Nationwide Health Properties, Inc. (a New York Stock
Exchange listed REIT) since September 1989 and a director of that company since
October 1989. Mr. Andrews had previously served as a director of American
Medical International, Inc., a hospital management company, and served as its
Chief Financial Officer from 1970 to 1985 and its Chief Operating Officer in
1985 and 1986. Mr. Andrews is also a director of Alexander Haagen Properties,
Inc.
MAURICE J. DEWALD. Mr. DeWald, age 56, is Chairman and Chief Executive
Officer of Verity Financial Group based in Irvine, California. Mr. DeWald
founded Verity Financial in 1992 to develop and implement investment
opportunities in the U.S. and internationally. Previously, Mr. DeWald had a
30 year career at KPMG Peat Marwick, where he was a Managing Partner and served
on its Board of Directors. Mr. DeWald is currently a director of several other
firms, including: Tenet Healthcare Corporation, Dai-Ichi Kangyo Bank of
California, and Monarch Funds. He is also a trustee of St. John's Hospital and
Health Care Foundation and Loyola Marymount University, and serves on the
advisory Council of the University of Notre Dame School of Business. Mr DeWald
is a Certified Public Accountant.
JAMES M. PETERS. Mr. Peters, age 60, is the founder of the J. M.
Peters Company (an American Stock Exchange listed company), a California-based
home building firm operating in 14 western states. Mr. Peters served as
President and Chief Executive Officer of the J. M. Peters Company from its
inception in 1975 until his retirement in 1992. During his career, Mr. Peters
has been responsible for building and marketing more than 12,000 housing units.
Mr. Peters serves as a member of the Board of Trustees of the UCLA Foundation.
JOHN J. RYDZEWSKI. Mr. Rydzewski, age 42, is an investment banker
specializing in health care finance. He has been a member of the firm
Benedetto, Gartland & Greene, Inc. since 1993. Mr. Rydzewski served as
Executive Vice President and Chief Financial Officer in 1992 for Four Winds,
Inc., a provider of behavioral health care services. He also served as a Vice
President in the health care finance group of Kidder, Peabody & Co.
Incorporated from 1986 to 1992. He has served as a director of United Medical
Corporation, a diversified health services provider, and Maxim Healthcare
Corporation, a behavioral health services provider. Mr.
26
<PAGE> 28
Rydzewski received a Master of Business Administration and a Bachelor of
Science Degree from the Wharton School of the University of Pennsylvania and is
a Certified Public Accountant.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the General Partners' potential
compensation and the compensation which the General Partners are earning.
Acquisition Fees A property acquisition fee of 2% of Gross
(ARV Assisted Living, Inc.) Offering Proceeds to be paid for services
in connection with the selection and purchase
of Projects and related negotiations. In
addition, a development, processing and
renovation fee of 3.5% of Gross Offering
Proceeds to be paid for services in
connection with negotiations for or the
renovation or improvement of existing
facilities and the development, processing or
construction of Projects developed by the
Registrant. There were -0- property
acquisitions, development, processing and
renovation fees for the years ending December
31, 1995, 1994, and 1993.
Rent-Up and Staff Rent-up and staff training fees of 4.5% of
Training Fees the Gross Offering Proceeds allocated to
(ARV Assisted Living, Inc.) each specific acquired or developed Project.
Such fees will be paid for services in
connection with the opening and initial
operations of the Projects including, without
limitation, design and implementation of the
advertising, direct solicitation and other
campaigns to attract residents and the
initial hiring and training of managers, food
service specialists, activities directors and
other personnel employed in the individual
facilities. There were -0- rent-up and staff
training fees for the years ending December
31, 1995, 1994 and 1993.
Property Management Fees A property management fee of 5% of gross
(ARV Assisted Living, Inc.) revenues paid for managerial services
including general supervision, hiring of
onsite management personnel employed by the
Registrant, renting of units, installation
and provision of food service, maintenance,
and other operations. Property management
fees for the years ending December 31, 1995,
1994 and 1993 were $280,188, $325,674, and
$254,809, respectively.
Partnership Management Fees A fixed partnership management fee of 10% of
(ARV Assisted Living, Inc.) cash flow before distributions is paid for
implementing the Partnership business plan,
supervising and management of Partnership
affairs including general administration,
coordination of legal, audit, tax, and
insurance matters. Partnership management
fees for the years ending December 31, 1995,
1994, and 1993 were $91,644, $88,414, and
$55,659, respectively.
Sale of Partnership The Limited Partnership Agreement neither
Projects permits nor prohibits payment or
(General Partners) compensation in the form of real estate
commissions to the General Partners or its
Affiliates which is subordinated to a return
to Limited Partners of their capital
contributions plus an 8% per annum,
cumulative, but not compounded, return
thereon from all sources, including prior
distribution of cash flow. Any such
compensation shall not exceed 3% of the gross
sales price or 50% of the standard real
estate brokerage commission, whichever is
less. In fiscal 1995 and 1994, the
Registrant paid the General Partner a selling
commission of $-0- and $387,760,
respectively.
27
<PAGE> 29
Subordinated Incentive 15% of Proceeds of Sale or Refinancing
Compensation subordinated to a return of Initial
(ARV Assisted Living, Inc.) Capital Contributions plus accumulative,
but not compounded return on capital
contributions varying from 8% to 10% per
annum.
Partnership Interest 1% of all items of capital, profit or loss,
(General Partners) and liquidating Distributions, subject to a
capital account adjustment.
Reimbursed Expenses & General Partners may receive fees for
Credit Enhancement personal guarantees of loans made to the
(General Partners) Registrant. All Registrant's expenses shall
be billed directly to and paid by the
Registrant. General Partners may be
reimbursed for the actual cost of goods and
materials obtained from unaffiliated entities
and used for or by the Registrant. The
Managing Partner will be reimbursed for
administrative services necessary to the
prudent operation of Registrant, provided
that such reimbursement is at the lower of
its actual cost or the amount which the
Registrant would be required to pay to
independent parties for comparable
administrative services in the same
geographic location. The total
reimbursements to ARVAL amounted to
$1,226,983, $1,372,587, and $1,550,704 for
the years ending December 31, 1995, 1994 and
1993, respectively.
Finder Fees General Partners received finders fees in
(ARV Assisted Living, Inc.) conjunction with obtaining grants for the
rehabilitation of Cedar Villas and Villa
Azusa. The finders fees amount to 10% of the
total grant money received by the Registrant.
Finder fees for the years ending December 31,
1995, 1994 and 1993 were $-0-. $50,000 and
$100,000 respectively.
Indemnity Fees The General Partners received $96,000 for
(General Partners) indemnifying and holding UHSI, holding
UHSI, Costa and Husky harmless from any
liabilities as a result of the Registrant's
buy out of them. Indemnity fees for the years
ending December 31, 1995, 1994 and 1993 were
$-0-, $-0- and $96,000, respectively.
SEE FOOTNOTE 3 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (TRANSACTIONS WITH
AFFILIATES).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Not applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Other than the compensation earned by the General Partners, as set out
under ITEM 11 above, no General Partner or Affiliate receives any direct or
indirect compensation from the Registrant. For example, the Managing Partner
receives a management fee of 5% of Gross Revenues. Because these fees are
payable without regard to whether particular facilities are generating Cash
Flow or otherwise benefitting the Registrant, a conflict of interest could
arise in that it might be to the advantage of the General Partners that a
facility be retained or re- financed rather than sold. On the other hand, an
Affiliate of the General Partners may earn a real estate commission on sale of
a property, creating incentive to sell what might be a profitable property.
28
<PAGE> 30
The General Partners have authority to invest the Registrant's funds
in properties or entities in which they, or any affiliate have an interest,
provided the Registrant acquires a controlling interest. In any such
investment, duplicate property management or other fees will not be permitted.
The General Partners or Affiliates may, however, purchase property in their own
names and temporarily hold title to facilitate acquisition for the Registrant,
provided that such property is purchased by the Registrant at cost (including
acquisition, closing and carrying costs). The General Partners will not
commingle Registrant's funds with those of any other person or entity.
Conflicts of interest will exist to the extent that facilities owned
or operated compete, or are in a position to compete for residents, general
managers or key employees with assisted living facilities owned or operated by
the General Partners and Affiliates in the same geographic area. The General
Partners will seek to reduce any such conflicts by offering such persons their
choice of residence or employment on comparable terms in any facility.
The personnel working at each facility are employed by the
Registrant's managing partner, ARVAL. ARVAL pays payroll and retirement
benefit expenses on the Registrant's behalf and is subsequently reimbursed by
the Registrant. The retirement benefit expense consists of contributions made
to an employee stock ownership plan ("ESOP"). Effective April 1, 1991, ARVAL
approved an ESOP to enable all eligible employees of ARVAL and its affiliates
to own common stock in ARVAL. The last contribution made to the ESOP ws on
March 31, 1995. The General Partners are currently considering whether or not
to continue making contributions to the ESOP.
Further conflicts may exist if and to the extent that other affiliated
owners of assisted living facilities seek to refinance or sell at the same time
as the Registrant. The General Partners will seek to reduce any such conflicts
by making prospective purchasers aware of all properties available for sale.
29
<PAGE> 31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) The following documents are filed as a part of this
Report:
(i) Independent Auditors' Report.
(ii) Consolidated Balance Sheets - December 31,
1995 and 1994.
(iii) Consolidated Statements of Operations - Years
ended December 31, 1995, 1994 and 1993.
(iv) Consolidated Statements of Partners' Capital
- Years ended December 31, 1995, 1994 and
1993.
(v) Consolidated Statements of Cash Flows - Years
ended December 31, 1995, 1994 and 1993.
(vi) Notes to Consolidated Financial Statements.
(vii) Financial Statement Schedule - Schedule III -
Real Estate and Related Accumulated
Depreciation and Amortization - December 31,
1995.
(b) Reports on Form 8-K. The registrant did not file any
8-K reports during the last quarter of 1995.
(c) Exhibit 27 - Financial Data Schedule
30
<PAGE> 32
AMERICAN RETIREMENT VILLAS
PROPERTIES III, L.P.
(A California Limited Partnership)
Annual Report - Form 10-K
Consolidated Financial Statements and Schedule
Items 8 and 14(a)
(With Independent Auditors' Report Thereon)
F-1
<PAGE> 33
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Annual Report - Form 10-K
Items 8 and 14(a)
Index to Consolidated Financial Statements and Schedule
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-3
Consolidated Balance Sheets - December 31, 1995 and 1994 F-4
Consolidated Statements of Operations - Years ended December 31, 1995, 1994 and 1993 F-5
Consolidated Statements of Partners' Capital - Years ended December 31, 1995, 1994 and 1993 F-6
Consolidated Statements of Cash Flows - Years ended December 31, 1995, 1994
and 1993 F-7
Notes to Consolidated Financial Statements F-8
Schedule
- --------
Real Estate and Related Accumulated Depreciation and
Amortization - December 31, 1995 Schedule III
</TABLE>
All other schedules are omitted, as the required information is inapplicable or
the information is presented in the consolidated financial statements or
related notes.
F-2
<PAGE> 34
INDEPENDENT AUDITORS' REPORT
To ARV Assisted Living, Inc. as the Managing General Partner of
American Retirement Villas Properties III, L.P.:
We have audited the consolidated financial statements of American Retirement
Villas Properties III, L.P., a California limited partnership, as listed in the
accompanying index. In connection with our audits of the consolidated
financial statements, we have also audited the consolidated financial statement
schedule listed in the accompanying index. These consolidated financial
statements and consolidated financial statement schedule are the responsibility
of the Partnership's management. Our responsibility is to express an opinion
on these consolidated financial statements and consolidated financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Retirement
Villas Properties III, L.P. as of December 31, 1995 and 1994, and the results
of its operations and its cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted
accounting principles. Also, in our opinion, the related consolidated
financial statement schedule, when considered in relation to the consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Orange County, California
March 29, 1996, except note 5,
which is as of April 16, 1996.
F-3
<PAGE> 35
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Consolidated Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
------------- -----------
<S> <C> <C>
Properties, at cost (notes 4, 5 and 6):
Land $ 4,667,143 4,667,143
Building and improvements, less accumulated depreciation
of $2,657,624 in 1995 and $1,944,328 in 1994 18,237,426 18,624,608
Furniture, fixtures and equipment, less accumulated
depreciation of $762,014 in 1995 and $758,764 in 1994 393,988 460,309
------------- -----------
Net properties 23,298,557 23,752,060
Property under contract for sale (notes 4 and 5) 8,500,359 8,787,638
Cash 477,705 1,485,516
Restricted cash (note 5) 130,178 250,000
Amounts receivable from affiliate (note 3) -- 46,800
Pre-opening costs, less accumulated amortization of $286,934
in 1995 and 1994 (note 3) 154,814 154,814
Loan fees, less accumulated amortization of $105,172 in 1995
and $69,520 in 1994 140,665 175,655
Other assets 92,092 141,716
------------- -----------
$ 32,794,370 34,794,199
============= ===========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable (notes 4 and 5) $ 16,272,463 16,779,251
Loan secured by property under contract for sale (notes 4 and 5) 4,473,704 4,500,000
Deposits under contract for sale (note 4) 2,968,562 1,759,457
Accounts payable and accrued expenses 472,473 485,649
Amounts payable to affiliates (note 3) 113,338 102,456
Distributions payable to Partners (note 2) 186,691 2,113,294
------------- -----------
Total liabilities 24,487,231 25,740,107
------------- -----------
Partners' capital (deficit) (notes 2 and 3):
General partners (75,682) (68,212)
Limited partners, 18,652 units outstanding at December 31,
1995 and 1994, respectively 8,382,821 9,122,304
------------- -----------
Total partners' capital 8,307,139 9,054,092
Commitments and contingencies (notes 5 and 6)
$ 32,794,370 $ 34,794,199
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 36
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Consolidated Statements of Operations
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- --------- ---------
<S> <C> <C> <C>
Revenues:
Rent $ 5,130,206 5,154,273 4,646,321
Assisted living 344,190 364,178 366,594
Interest 499,646 530,175 30,275
Grants (note 6) 40,686 -- 285,693
Other 79,665 87,060 53,004
----------- --------- ---------
Total revenues 6,094,393 6,135,686 5,381,887
----------- --------- ---------
Costs and expenses:
Rental property operations (including
$1,285,322, $1,349,475 and
$1,487,310 related to affiliates
in 1995, 1994 and 1993,
respectively)(note 3) 2,496,606 2,585,519 2,363,824
Assisted living (all related to affiliates)
(note 3) 168,387 209,417 211,979
Depreciation and amortization 1,253,845 1,305,284 1,539,040
Interest (note 5) 1,868,250 1,949,480 1,368,180
General and administrative (including
$145,106, $227,783 and $161,883
related to affiliates in 1995, 1994 and
1993, respectively) (note 3) 401,645 428,890 366,050
Property taxes 332,849 269,740 257,907
Advertising 40,600 68,528 46,603
Minority interest in operations (note 4) (3,923) 17,331 3,592
----------- --------- ---------
Total costs and expenses 6,558,259 6,834,189 6,157,175
----------- --------- ---------
Net loss $ (463,866) (698,503) (775,288)
=========== ========= =========
Net loss per limited partner unit $ (24.62) (37.07) (41.15)
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 37
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Consolidated Statements of Partners' Capital
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
TOTAL
GENERAL LIMITED PARTNERS'
PARTNERS PARTNERS CAPITAL
------------ ---------- ----------
<S> <C> <C> <C>
Balance (deficit) at December 31,1992 $ (18,590) 14,046,067 14,027,477
Units repurchased (note 2) -- (11,050) (11,050)
Distributions to partners ($34.45 per limited
partner unit) (6,491) (642,603) (649,094)
Net loss (7,753) (767,535) (775,288)
------------ ---------- ----------
Balance (deficit) at December 31, 1993 (32,834) 12,624,879 12,592,045
Distributions to partners ($150.71 per limited
partner unit) (28,393) (2,811,057) (2,839,450)
Net loss (6,985) (691,518) (698,503)
------------ ---------- ----------
Balance (deficit) at December 31, 1994 (68,212) 9,122,304 9,054,092
Distributions to partners ($15.03 per limited
partner unit) (2,832) (280,255) (283,087)
Net loss (4,638) (459,228) (463,866)
------------ ---------- ----------
Balance (deficit) at December 31, 1995 $ (75,682) 8,382,821 8,307,139
============ ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 38
AMERICAN RETIREMENT VILLAS PROPERTIES III
(A California Limited Partnership)
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (463,866) (698,503) (775,288)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,253,845 1,305,284 1,539,040
Change in assets and liabilities:
Increase in organization costs -- -- (10,205)
(Increase) decrease in loan fees (662) 1,000 (156,903)
Decrease in restricted cash 119,822 -- --
(Increase) decrease in other assets (376) 198,601 (175,681)
Increase in accounts payable and
accrued expenses (13,176) (489) (35,974)
Decrease in amounts payable to affiliates 10,882 29,214 212,777
----------- ------------ ------------
Net cash provided by operating
activities 906,469 835,107 597,766
----------- ------------ ------------
Cash flows from investing activities:
Acquisitions of properties -- -- (1,275,816)
Improvements/construction on land and building (276,114) (157,491) (4,807,834)
Additions to furniture, fixtures and equipment, net (153,488) (83,574) (147,297)
Payment of real estate commission -- (387,760) --
Deposit on property under contract for sale 1,185,000 1,795,000 --
----------- ------------ ------------
Net cash provided by (used in)
investing activities 755,398 1,166,175 (6,230,947)
----------- ------------ ------------
Cash flows from financing activities:
Decrease in amounts receivable from affiliate 46,800 209,168 689,439
Proceeds from notes payable 66,125 200,000 --
Principal repayments on notes payable (222,913) (454,466) (648,924)
Draws on construction loan -- -- 3,962,064
Borrowings on line-of-credit agreement -- 300,000 680,000
Repayments on line-of-credit agreement (350,000) (450,000) (380,000)
Repurchase of partnership units -- -- (11,050)
Distributions paid (2,209,690) (916,432) (671,315)
----------- ------------ ------------
Net cash provided by (used in)
financing activities (2,669,678) (1,111,730) 3,620,214
----------- ------------ ------------
Net increase (decrease) in cash and cash equivalents (1,007,811) 889,552 (2,012,967)
Cash at beginning of year 1,485,516 595,964 2,608,931
----------- ------------ ------------
Cash at end of year $ 477,705 1,485,516 595,964
=========== ============ ============
Supplemental schedule of cash flow information - cash
paid during the year for interest (net of capitalized
interest of $0, $50,498 and $149,720 in 1995, 1994
and 1993, respectively) $ 1,869,923 1,947,807 1,315,445
=========== ============ ============
Assumption of notes payable in the acquisition of
properties $ -- -- 3,229,289
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 39
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of American Retirement Villas
Properties III, L.P. (the Partnership) include the accounts of the
Partnership, ARVP III/Bradford Square, L.P. (ARVP III/BS), Heritage
Pointe Ontario Partners, L.P. (HPOP), Heritage Pointe Pomona Partners,
L.P. (HPPP) and Heritage Pointe Claremont Partners, L.P. (HPCP),
limited partnerships. The Partnership is a 50% general partner in
ARVP III/BS and effective in May 1993, became a 100% owner of HPOP,
HPPP and HPCP. The Partnership was previously a 50% general partner
in HPOP, HPPP and HPCP. All intercompany balances and transactions
have been eliminated in consolidation. The Partnership consolidates
these limited partnerships since it has a controlling financial
interest. Minority interest, which is included in accrued expenses,
represents the minority partners' cost to acquire the minority
interest adjusted by their proportionate share of subsequent earnings,
losses and distributions. During 1993, the Partnership acquired the
minority partners' interest in HPOP, HPPP and HPCP. These purchases
were accounted for under the purchase method. The impact of these
acquisitions, assuming that they had occurred as of January 1, 1993,
would not be material to the consolidated net income (loss) or net
income (loss) per limited partner unit in 1995, 1994 or 1993.
BASIS OF ACCOUNTING
The Partnership maintains its records on the accrual method of
accounting for financial reporting and Federal and state tax purposes.
CARRYING VALUE OF REAL ESTATE
Properties are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the
estimated useful lives of buildings and improvements, furniture,
fixtures and equipment, ranging from 3 to approximately 27-1/2 years.
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 (SFAS No. 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 requires the Partnership to
adopt the provisions of the new statement no later than fiscal 1996.
SFAS 121 requires an impairment loss to be recorded as a reduction to
operating income if the sum of the expected undiscounted cash flows
derived from an asset is less than the asset's carrying value. The
Partnership adopted SFAS 121 in fiscal year 1994 without any impact on
the consolidated financial statements.
ORGANIZATION COSTS
Costs related to the organization of the Partnership were amortized
using the straight-line method over a period of five years. The costs
were fully amortized at December 31, 1995.
F-8
<PAGE> 40
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
PRE-OPENING COSTS
Costs such as fees paid for employee training, rent-up and other
related costs incurred prior to the opening of a retirement facility
are deferred and amortized using the straight-line method over a
period of one year.
LOAN FEES
Amortization of loan fees is computed using the interest method over
the term of the respective note payable.
RENTAL INCOME
Rent agreements with tenants are on a month-to-month basis. Advance
deposits are applied to the first month's rent.
INCOME TAXES
Under provisions of the Internal Revenue Code and the California
Revenue and Taxation Code, partnerships are generally not subject to
income taxes. For tax purposes, any income or losses realized are
those of the individual partners, not the Partnership.
The Partnership has not requested a ruling from the Internal Revenue
Service to the effect that it will be treated as a partnership and not
an association taxable as a corporation for Federal income tax
purposes. The Partnership received an opinion of counsel as to its
tax status prior to its effectiveness for the offering of limited
partnership units, but such opinion is not binding upon the Internal
Revenue Service.
Following are the Partnership's assets and liabilities as determined
in accordance with generally accepted accounting principles (GAAP) and
for Federal income tax reporting purposes at December 31:
<TABLE>
<CAPTION>
1995 1994
-------------------------------------- ----------------------------------
GAAP BASIS TAX BASIS (1) GAAP BASIS TAX BASIS (1)
------------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Total assets $ 32,794,370 31,467,268 34,794,199 32,306,931
Total liabilities 24,487,231 17,477,614 25,740,107 14,936,430
</TABLE>
F-9
<PAGE> 41
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
Following are the differences between the financial statement and tax
return income:
<TABLE>
<CAPTION>
1995 1994 1993
------------ --------- --------
<S> <C> <C> <C>
Net loss per financial statements $ (463,866) (698,503) (775,288)
Guaranteed payments (1) 371,832 325,303 470,067
Depreciation differences on properties (1) 455,568 218,371 105,035
Amortization differences on intangible assets (1) 53,058 72,945 208,827
Deferred income (1) (9,812) 15,163 (311,305)
Capitalized costs (1) (323,579) 54,180
Imputed interest (1) -- 178,070 --
Interest expense (1) -- 239,836 --
Interest income (1) -- 391,482 --
Gain on sale of assets (1) -- 360,573 --
Other (1) 748,963 101,559 97,358
------------ --------- --------
Total income (loss) per Federal tax
return (1) $ 832,164 1,204,799 (151,126)
============ ========= ========
</TABLE>
(1) Unaudited
NET LOSS PER LIMITED PARTNER UNIT
Net loss per limited partner unit was based on the weighted average
number of limited partner units outstanding of 18,652, 18,652, and 18,653
in 1995, 1994 and 1993, respectively.
RECLASSIFICATIONS
Certain 1994 and 1993 amounts have been reclassified to conform to the
1995 presentation.
(2) ORGANIZATION AND PARTNERSHIP AGREEMENT
The Partnership was formed on June 28, 1989 for the purpose of acquiring,
developing and operating residential retirement facilities and senior
apartment complexes. The term of the Partnership is 60 years and may be
dissolved earlier under certain circumstances. The Partnership commenced
operations on December 28, 1989 when the minimum number of units (1,250)
had been sold.
Limited partner units (minimum of 2 units per investor for Individual
Retirement Accounts, KEOGH'S and pension plans and 5 units for all other
investors) were offered for sale to the general public. Each limited
partner unit represents a $1,000 capital contribution. The maximum
number of units offered totaled 35,000 units. There were 18,665 Limited
Partner units sold through the end of the offering in October 1992 which
represented a cumulative capital investment of $18,665,000. In January
and March of 1993, the Partnership repurchased and effectively retired 10
units for $8,500 and 3 units for $2,550, respectively, from Limited
Partners.
F-10
<PAGE> 42
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
Under the Partnership Agreement, the maximum liability of the Limited
Partners is the amount of their capital contributions.
The Managing General Partner is ARV Assisted Living, Inc. (ARVAL), a
California corporation, and the individual General Partners are John A.
Booty, John S. Jason, Gary L. Davidson, Tony Rota and David P. Collins.
The individual General Partners are shareholders of the Managing General
Partner. The General Partners are not required to make capital
contributions to the Partnership.
Profits and losses for financial and income tax reporting purposes shall
generally be allocated, other than cost recovery deductions (as defined
in the Partnership Agreement), 1% to the General Partners and 99% to the
Limited Partners. Cost recovery deductions for each year are allocated
1% to the General Partners and 99% to the Limited Partners who are
taxable investors.
Cash available for distribution from operations is to be distributed 1%
to the General Partners and 99% to the Limited Partners.
Upon any sale, refinancing or other disposition of the Partnership's real
properties, distributions are to be made 1% to the General Partners and
99% to the Limited Partners until the Limited Partners have received an
amount equal to 100% of their capital contributions plus an amount
ranging from 8% to 10% (depending upon the timing of the Limited
Partner's investment) of their capital contributions per annum,
cumulative but not compounded, from the date of each Partner's
investment. The cumulative return is to be reduced, but not below zero,
by the aggregate amount of prior distributions from all sources.
Thereafter, distributions are 15% to the General Partners and 85% to the
Limited Partners, except that after the sale of the properties, the
proceeds of sale of any last remaining assets owned by the Partnership
are to be distributed in accordance with positive capital account
balances.
(3) TRANSACTIONS WITH AFFILIATES
The Partnership has an agreement with ARVAL providing for a property
management fee of 5% of gross revenues and a Partnership management fee
of 10% of cash flow before distributions, as defined in the Partnership
Agreement, amounting to $280,188, $325,674, $254,809 and $91,644,
$88,414, $55,659 for the years ended December 31, 1995, 1994 and 1993,
respectively.
ARVAL pays certain expenses, such as repairs and maintenance, supplies,
payroll and retirement benefit expenses on behalf of the Partnership and
is subsequently reimbursed by the Partnership. The retirement benefit
expenses of $4,260, $31,201 and $31,383 for the years ended December 31,
1995, 1994 and 1993, respectively, consists of contributions made to an
employee stock ownership plan (ESOP). The total reimbursements to ARVAL,
including the retirement benefit expense, are included in rental property
operations and general and administrative expenses in the accompanying
statements of operations and amounted to $1,226,983, $1,372,587 and
$1,550,704 for the years ended December 31, 1995, 1994 and 1993,
respectively.
In consideration for services rendered with respect to property
acquisitions, the Managing General Partner is paid a property acquisition
fee of a maximum of 2% of the gross offering proceeds. In addition, the
Managing General Partner is entitled to a development, processing and
renovation fee of a maximum of 3.5% of gross offering proceeds allocated
to a particular
F-11
<PAGE> 43
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
project. The Managing General Partner is also entitled to a maximum fee
of 4.5% of gross offering proceeds for rent-up and staff training
services, which amounted to $549,048 for the
F-12
<PAGE> 44
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
year ended December 31, 1992. Property acquisition and development,
processing and renovation fees amounted to $1,026,594 at December 31,
1992 and were capitalized as part of the cost of the related properties.
During 1993, the other Co-General Partner in HPOP, HPPP and HPCP assigned
its 12.5% interest in the respective partnerships to the two limited
partners giving each Limited Partner a 25% interest in each partnership.
Subsequently, in May 1994, the Partnership acquired each Limited
Partner's interests in the aforementioned partnerships for a total cost
of $198,000. An additional payment of $96,000 was made in 1993 to
certain General Partners of the Partnership as part of the buyout
arrangement to indemnify the limited partners from any future
liabilities.
All organization and offering costs, to the extent such costs, when added
to selling commissions, exceeded 15% of gross proceeds as of December 31,
1991 were classified as prepaid syndication costs. During October 1992,
the Partnership's offering was closed and the excess of the syndication
costs incurred over the 15% maximum of $2,799,802 was required to be
reimbursed by the General Partners in accordance with the Partnership
Agreement. As of December 31, 1995 and 1994, $0 and $46,800,
respectively, is still owed from the General Partners.
During 1993, the Partnership entered into rehabilitation and affordable
housing subsidy agreements with the cities of Azusa and Ontario. In
conjunction with obtaining the grants, the Partnership paid ARVAL certain
finders fees which have been capitalized as part of the cost of the
respective property as all of the available grant monies have been
received at December 31, 1995.
During 1993, the Partnership paid predevelopment costs of $40,500 to an
unrelated third party associated with the purchase of a property which
was instead purchased by an affiliated partnership. This amount was
repaid to the Partnership by ARV Community Builders, a subsidiary of
ARVAL, and General Partner of the related partnership, in 1994.
In connection with the HPCP sales agreement, the Partnership paid the
general partner a selling commission of $387,760 in 1994.
During 1994, the Partnership borrowed $200,000 from an affiliate of the
General Partner, the balance of which was subsequently assumed by ARVAL,
including accrued interest. The 60-day note bore interest at 10%.
Amounts payable to affiliate at December 31, 1995 and 1994 includes
expense reimbursements and accrued property management and partnership
management fees.
(4) PROPERTIES
VILLA LAS POSAS
In December 1989, the Partnership purchased land in Camarillo, California
upon which to construct an assisted living facility. The total purchase
price of the land plus development costs incurred to date amounted to
$2,801,641 at December 31, 1995. The project has not yet been completed
due to the lack of outside financing opportunities for assisted living
projects through 1995.
F-13
<PAGE> 45
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
CHANDLER VILLAS
In September 1990, the Partnership purchased an existing residential
retirement facility located in Chandler, Arizona.
VILLA AZUSA
On May 26, 1993, the Partnership acquired the operations of an existing
assisted living facility. The Partnership purchased the property subject
to, but did not formally assume, a loan in favor of a bank. The
remainder of the purchase price was paid in cash.
ARVP III/BRADFORD SQUARE LTD.
On December 18, 1990, the Partnership entered into a limited partnership,
ARVP III/BS, with an unrelated third party, Bradford Square Ltd. Both
partners made an initial $1,000 cash contribution. The Partnership is
the Managing General Partner and Bradford Square Ltd. is the Limited
Partner, each with a 50% interest. Pursuant to the agreement, Bradford
Square Ltd. contributed the existing facility (Bradford Square), to ARVP
III/BS, and, the Partnership contributed cash. Income and loss is
generally allocated to the Managing General Partner and Bradford Square,
Ltd. based on their partnership interests.
Under the limited partnership agreement between the Partnership and
Bradford Square Ltd., the Partnership receives a 9% preferred return on
125% of amounts contributed to the partnership. The remaining cash flow
from operations is divided equally between the Partnership and Bradford
Square Ltd. During 1995, 1994 and 1993, the Partnership received a
preferred return of $166,829, $215,087 and $187,510, respectively.
CEDAR VILLAS
On August 19, 1992, the Partnership entered into a limited partnership,
HPOP, a California limited partnership, with an unrelated third party,
Urban Housing Systems, Inc. (UHSI) and its two individual owners. The
Partnership and UHSI were Co-General Partners with a 50% and 12.5%
partnership interest, respectively, and the individuals were the two
Limited Partners each having an 18.75% partnership interest. Income and
loss was generally allocated to the partners based on their respective
partnership interests. The Partnership made an initial $50,000 cash
contribution and the two Limited Partners each contributed $100. On
October 1, 1992, HPOP purchased an existing senior apartment facility
(Cedar Villas) from an unrelated third party. The purchase price
consisted of cash and a loan in favor of a bank collateralized by the
property but not formally assumed by the Partnership. During 1993, UHSI
assigned its 12.5% interest in HPOP to the two Limited Partners giving
each Limited Partner a 25% interest. In May 1993, the Partnership
acquired the Limited Partners' interest in HPOP for a nominal amount.
PACIFIC VILLAS
On August 19, 1992, the Partnership entered into another limited
partnership, HPPP, a California limited partnership, with UHSI and its
two individual owners. The Partnership and UHSI were Co-General Partners
with a 50% and 12.5% partnership interest, respectively, and the
individuals were the two Limited Partners each having an 18.75%
partnership interest. Income and loss was generally allocated to the
partners based on their respective partnership interests. The
F-14
<PAGE> 46
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
Partnership made an initial $50,000 cash contribution and the two Limited
Partners each contributed $100. On October 1, 1992, HPPP purchased an
existing senior apartment facility (Pacific Villas) from an unrelated
third party. The purchase price consisted of a note taken back by the
seller, a loan in favor of a bank collateralized by the property but not
formally assumed by HPPP and the remainder of the purchase price was paid
in cash. During 1993, UHSI assigned its 12.5% interest in HPPP to the
two Limited Partners giving each Limited Partner a 25% interest. In May
1993, the Partnership acquired the Limited Partners' interest in HPPP for
a nominal amount.
HERITAGE POINTE CLAREMONT
On January 14, 1992, the Partnership entered into a limited partnership,
HPCP, with UHSI and the two individual owners of UHSI. The Partnership
and UHSI were Co-General Partners with a 50% and 12.5% partnership
interest, respectively, and UHSI's individual owners were the two Limited
Partners each having an 18.75% partnership interest. Income and loss was
generally allocated to the partners based on their respective partnership
interests. On October 5, 1992, HPCP purchased an undeveloped parcel of
land in Claremont, California from an unrelated third party and obtained
a construction loan, secured by the property, to finance the cost of
building a senior apartment facility. During 1993, UHSI assigned its
12.5% interest in HPCP to the two Limited Partners giving each Limited
Partner a 25% interest. In May 1993, the Partnership acquired the
Limited Partners' interest in HPCP for a nominal amount.
In December 1993, HPCP transferred title to the partnership's property,
valued at $9,074,846, to an affiliated partnership, Claremont Senior
Partners, L.P. (CSP) under a sales agreement. Under the terms of the
sales agreement, HPCP received two promissory notes and a nominal cash
payment amounting to, in total, approximately $12,300,000. Total selling
costs associated with this transaction were approximately $420,000.
The first promissory note accrued interest annually at a rate equal to
the U.S. Bank of Oregon's reference rate plus 2%, was due on demand on or
before June 30, 1995, and wrapped around the underlying construction loan
(the Construction Loan) assumed by the buyer upon transfer of the
property. CSP assumed all obligations of HPCP under the Construction
Loan and took title to the aforementioned property in 1993. Under the
terms of this loan assumption, HPCP remained fully liable for the
existing loan balance as a guarantor and was additionally liable and
responsible for the repayment of any additional draws on the Construction
Loan by CSP. During 1993, CSP additionally drew approximately $880,000
on the Construction Loan and made payments totaling $2,365,000. The
second promissory note accrued interest at 8.25% which was payable
monthly and was due in December 2008. Both notes were secured by certain
CSP partners' interests in CSP under the loan agreement.
In September 1994, CSP obtained permanent financing of $4,500,000 (the
Permanent Loan, secured by deed of trust on Heritage Point Claremont,
bearing interest at 9.74% at December 31, 1995 (the bank has the option
to adjust the interest to a rate of 2.50% above the 10 year treasury
constant maturity yield and in no event shall the interest rate be less
than 4% or more than 13.74%); monthly principal and interest installments
of $38,629 and all unpaid principal and interest is due on January 1,
2025), the proceeds of which were primarily utilized to pay off the
existing balance on the Construction Loan, and a portion of the existing
principal and interest on the Partnership's related promissory notes. As
a result, the portion of the first promissory note related to the
Construction Loan was eliminated. In January 1995, both promissory notes
were
F-15
<PAGE> 47
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
amended and the combined balance due amounted to $5,097,041 at December
31, 1995. The notes now bear interest at an annual rate of 8%.
Interest only is payable on these notes until the limited partner of
CSP makes the third capital contribution, which is required only after
the CSP property reaches certain occupancy levels. Conditions for
payment of the third capital contribution have been met and such
payment is anticipated to be received in April 1996. Thereafter, the
notes are amortized over 30 years but payment of all of the
outstanding balance and interest are payable on January 25, 2010.
Further, any payment of these notes can be made only from excess cash
flows (as defined in the CSP Partnership Agreement). Additionally,
these notes continue to be secured by certain CSP partner's interests
in CSP.
In January 1995, CSP paid $1,145,000 to the Partnership as principal
and interest reductions of the promissory notes.
This transaction has not been treated as a sale for accounting
purposes. As per the requirements of Statement of Financial
Accounting Standards No. 66 (SFAS 66), "Accounting for Sales of Real
Estate," a sufficient investment (as defined) by the buyer of 25% of
the sales price has not been made. Accordingly, the property is
reported as property under contract for sale, the buyer's down payment
and payments on the promissory notes are reflected as deposits under
contract for sale and the promissory notes are not recorded in the
accompanying consolidated balance sheet.
(5) NOTES PAYABLE
At December 31, 1995 and 1994, notes payable included the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Note payable in favor of a bank and not formally assumed by
the Partnership, secured by deed of trust on Pacific
Villas, interest at 2.25% above the eleventh district
cost of funds (5.059% at December 31, 1995); terms of
promissory note required full payment of amounts due when
the property was sold to the Partnership in 1992,
otherwise monthly principal and interest installments of
$31,787 and all unpaid principal and interest is due on
November 1, 2017. $ 4,314,857 4,370,512
Note payable in favor of a bank and not formally assumed by
the Partnership, secured by deed of trust on Cedar
Villas, interest at 2.25% above the eleventh district
cost of funds and in no event shall the interest rate be
less than 8% or more than 14% (8% at December 31, 1995);
terms of promissory note required full payment of amounts
due when the property was sold to the Partnership in
1992, otherwise monthly principal and interest
installments of $31,124 and all unpaid principal and
interest is due on February 1, 2019.
3,932,421 3,988,838
</TABLE>
F-16
<PAGE> 48
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Note payable secured by deed of trust on Chandler Villas and
guaranteed by the General Partners, interest at 5.25% in
excess of the seven-year treasury yield (5.56% at
December 31, 1995); monthly principal and interest
installments of $27,213 and all unpaid principal and
interest is due on January 1, 2007. $ 2,443,031 2,463,585
Note payable secured by deed of trust on Bradford Square and
guaranteed by the General Partners, interest at 5.25% in
excess of the seven-year treasury yield (5.56% at
December 31, 1995); monthly principal and interest
installments of $27,213 and all unpaid principal and
interest is due on January 1, 2007. 2,443,013 2,463,585
Note payable in favor of a bank and not formally assumed by
the Partnership, secured by deed of trust on Villa Azusa,
interest at 2.25% above the monthly eleventh district
cost of funds (5.059% at December 31, 1995); terms of
promissory note required full payment of amounts due when
the property was sold to the Partnership, otherwise
payable in monthly principal and interest installments of
$23,769 with all unpaid principal and interest due on
February 1, 2017. 3,066,609 3,130,835
Revolving line of credit (maximum of $500,000 cash),
guaranteed by the General Partners, interest at 1.5% in
excess of the bank's prime rate (8.5% at December 31,
1995) adjusted periodically; interest only payments
commencing on October 1, 1994; repaid on January 5, 1995.
-- 350,000
Note payable, bearing interest at 9.98%, payable in monthly
principal and interest installments of $1,305; all unpaid
principal and interest due on December 1, 2000; secured
by equipment. 56,699 --
Other 15,833 11,896
------------- ----------
$ 16,272,463 16,779,251
============= ==========
</TABLE>
F-17
<PAGE> 49
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
The annual principal payments of notes payable, including loan secured by
property under contract for sale, as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1996 $ 11,404,453
1997 93,642
1998 103,126
1999 114,324
2000 125,250
Thereafter 8,905,372
------------
$ 20,746,167
============
</TABLE>
The notes payable in favor of banks, which the Partnership took
subject to but did not formally assume in the purchase of three
properties, contain provisions that required payment in full upon the
sale of these properties. The Partnership is negotiating or plans to
negotiate with the banks to assume these notes under the original
payment terms, has made payments on the notes under those terms and
believes these notes will not be called by the banks. Until such time
as the notes are formally assumed by the Partnership, however, they
are considered due on demand and included in amounts due in 1996 in
the above schedule of annual principal payments.
At December 31, 1995, the Partnership is out of compliance with a
certain debt covenant relating to the note payable secured by a deed
of trust on Bradford Square. The noncompliance resulted from the
Partnership's purchase of a van partially financed by a $57,447 lease.
As such, the Partnership was out of compliance by $7,447 with a
covenant that restricts the assumption of additional debt at $50,000.
A waiver of this covenant default was obtained from the lender.
The $4,500,000 Permanent Loan secured by HPCP is due on January 1,
2025, payable in monthly principal and interest installments of
$38,629, bears interest at 9.74% and is secured by the property. The
balance at December 31, 1995 was $4,473,704 and is included in the
accompanying consolidated balance sheet as "Loan secured by property
under contract for sale."
In connection with certain notes payable, the Partnership was required
to maintain two $125,000 irrevocable letters of credit with an
independent bank through December 1994, with interest on any amounts
disbursed at 2% in excess of the bank's reference rate. After this
date, the required balance on each letter of credit was reduced to
$62,500. As of December 31, 1995, no amounts were disbursed under
either of these letters of credit. These letters of credit are
secured by certificates of deposit (included in restricted cash), are
guaranteed by the General Partners and expire on March 31, 1996 and
automatically renew on that date.
(6) GRANT INCOME
During 1993, the Partnership entered into 30-year rehabilitation and
affordable housing subsidy agreements with the cities of Azusa and
Ontario. In conjunction with the agreements, the Partnership is to
receive up to $535,000 and $546,000 as compensation or reimbursement
to rehabilitate Villa Azusa and Cedar Villas, respectively, in order
to provide low income housing to persons 55 years of age or older. As
of December 31, 1995, $513,000 and $546,000 had been
F-18
<PAGE> 50
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
received from the cities of Azusa and Ontario, respectively, for
rehabilitation work performed. Part of the monies received from the
cities of Azusa and Ontario, approximately $41,000 and $286,000,
respectively, was not required to be used for rehabilitation work on
the project and, as such, these fees were recorded as grant income in
1995 and 1993, respectively. In the event that the Partnership
defaults on the provisions of the agreement within 15 years,
including, but not limited to, eliminating the low income housing
status of the apartment facility, the grant money must be returned to
the respective city. No default existed at December 31, 1995.
(7) ESOP
ARVAL offers an Employee Stock Ownership Plan to all eligible
employees which includes the employees of the Partnership. The amount
of stock contributed annually to the ESOP is at the discretion of
ARVHG. During 1994 and 1993, ARVAL's Board of Directors declared a
contribution equal to 3% of their payroll expense. During 1995,
ARVAL's Board of Directors declared a contribution in only the first
quarter of the year and that contribution approximated 3% of each
employee's payroll expense. The Partnership's expense was $4,260,
$31,201 and $31,383 for the ESOP (as a reimbursement to ARVAL) in
1995, 1994 and 1993, respectively.
(8) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement
of Financial Accounting Standards No. 107 (SFAS 107), "Disclosures
about Fair Value of Financial Instruments." The estimated fair value
amounts have been determined using available market information and
appropriate valuation methodologies. However, considerable judgment
is necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that could be realized
in a current market exchange. The use of different market assumptions
or estimation methodologies may have a material impact on the
estimated fair value amounts.
Fair value information related to financial instruments is as follows:
<TABLE>
<CAPTION>
December 31, 1995
------------------------------
Financial instrument Book value Fair value
-------------------- ---------- ----------
(dollars in thousands)
<S> <C> <C>
Cash $ 478 478
Notes payable 16,272 16,272
Loans secured by property under
contract for sale 4,474 4,566
</TABLE>
CASH
The carrying amount for cash approximates fair value because these
instruments are demand deposits and do not present unanticipated
interest rate or credit concerns.
F-19
<PAGE> 51
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
NOTES PAYABLE
For notes payable with variable interest rates, fair value is the amount
reported as payable in the financial statements. For notes payable with
fixed rates of interest, fair value is estimated using the rates
currently offered for bank borrowings with similar terms.
LOANS SECURED BY PROPERTY UNDER CONTRACT FOR SALE
The note carries a fixed rate of interest and fair value is estimated
using the rates currently offered for bank borrowings with similar terms.
F-20
<PAGE> 52
Schedule III
AMERICAN RETIREMENT VILLAS PROPERTIES III
(A California Limited Partnership)
Real Estate and Related Accumulated Depreciation and Amortization
December 31, 1994
<TABLE>
<CAPTION>
Costs
Initial cost capitalized
------------------------------ subsequent to
Building and acquisition or
Description (2) Encumbrances Land improvements construction
- --------------- ------------ ------ ------------ --------------
<S> <C> <C> <C> <C>
Villa Azusa $ 3,066,609 800,000 3,705,105 166,341
Villa Las Posas -- 1,210,000 571,506 1,020,135
Bradford Square 2,443,013 675,000 2,977,418 221,541
Chandler Villas 2,443,031 300,000 2,901,624 155,666
Cedar Villas 3,932,421 650,000 4,078,263 236,121
Pacific Villas 4,314,857 1,000,000 4,545,243 348,230
------------ --------- ---------- ---------
$ 16,199,931 4,635,000 18,779,159 2,148,034
============ ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
Gross amount Accumulated
------------------------------------------ depreciation
Building and and Date of Depreciable
Description (2) Land Improvements Total (1) Amortization Acquisition lives (years)
- --------------- --------- ------------ --------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Villa Azusa 800,000 3,871,446 4,671,446 359,897 5/93 27-1/2
Villa Las Posas 1,242,143 1,559,498 2,801,641 -- 12/89 27-1/2
Bradford Square 675,000 3,198,959 3,873,959 574,596 12/90 27-1/2
Chandler Villas 300,000 3,057,290 3,357,290 597,162 9/90 27-1/2
Cedar Villas 650,000 4,314,384 4,964,384 519,875 10/92 27-1/2
Pacific Villas 1,000,000 4,893,473 5,893,473 606,094 10/92 27-1/2
--------- ---------- ---------- ---------
4,667,143 20,895,050 25,562,193 2,657,624
========= ========== ========== =========
</TABLE>
Following is a summary of investment in properties for the
years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $25,236,079 25,078,588 24,361,788
Acquisitions -- -- 4,983,812
Improvements/construction 326,114 157,491 4,807,834
Transfer of land, Building and
improvements to property under
contract for sale -- -- (9,074,846)
----------- ---------- ----------
Balance at end of year $25,562,193 25,236,079 25,078,588
=========== ========== ==========
</TABLE>
(1) Aggregate cost for Federal income tax purposes is
$24,957,716 at December 31, 1995.
(2) Schedule excludes property related to Heritage Point
Claremont, as it is under contract for sale at December
31, 1995.
Following is a summary of accumulated depreciation and amortization of
investment in properties for the years ended December 31, 1995, 1994
and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
------------ --------- ---------
<S> <C> <C> <C>
Balance at beginning of year $ 1,944,328 1,234,451 588,799
Additions charged to expense 713,296 709,877 645,652
------------ --------- ---------
Balance at end of year $ 2,657,624 1,944,328 1,234,451
============ ========= =========
</TABLE>
F-21
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMERICAN RETIREMENT VILLAS PROPERTIES III,
A CALIFORNIA LIMITED PARTNERSHIP,
BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT
/s/ John A. Booty
-----------------------------------------------------------------
By: John A. Booty, President and Director of ARVAL,
Managing General Partner
/s/ Gary L. Davidson
-----------------------------------------------------------------
By: Gary L. Davidson, Chairman of the Board and Director of
ARVAL, Managing General Partner
/s/ Graham P. Espley-Jones
-----------------------------------------------------------------
By: Graham P. Espley-Jones, Chief Financial Officer and
Secretary of ARVAL, Managing General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John A. Booty
- -------------------------- President and August 13, 1996
John A. Booty Director of ARVAL
Managing General Partner
/s/ Gary L. Davidson
- -------------------------- Chairman of the Board August 13, 1996
Gary L. Davidson and Director of ARVAL
Managing General Partner
/s/ Graham P. Espley-Jones
- -------------------------- Chief Financial Officer August 13, 1996
Graham P. Espley-Jones and Secretary of ARVAL
Managing General Partner
</TABLE>
31
<TABLE> <S> <C>
<ARTICLE> CT
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<TOTAL-ASSETS> 32,794,370
0
0
<COMMON> 0
<OTHER-SE> 8,307,139
<TOTAL-LIABILITY-AND-EQUITY> 32,794,370
<TOTAL-REVENUES> 6,094,393
<INCOME-TAX> 0
<INCOME-CONTINUING> (463,866)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (463,866)
<EPS-PRIMARY> (24.62)
<EPS-DILUTED> (24.62)
</TABLE>
